The Robinhood stock-trading platform has done a good job of making investing accessible, and even fashionable, for the masses, but it's not perfect. First-time investors often start out as speculators, and they make mistakes.
We're seeing this play out in the cruising industry. Shares of Carnival, Royal Caribbean, and Norwegian Cruise Line are among the most popular stocks for Robinhood's 13 million users. Let's go over some of the things that speculators are getting wrong with cruise line stocks.
1. They're leaning on low-priced stocks
One of the biggest mistakes that investors make early in their trading lives is assuming that low-priced stocks have the best potential for appreciation. We see this on display here with cruise line stocks. Let's look at the stock prices and size up how popular Carnival, Royal Caribbean, and Norwegian Cruise Line are in terms of ownership among Robinhood users.
|Carnival (NYSE:CCL) (NYSE:CUK)||487,739||$17.01|
|Norwegian Cruise Line (NASDAQ:NCLH)||355,989||$18.06|
|Royal Caribbean (NYSE:RCL)||233,838||$57.47|
It's probably not a coincidence that the lower the share price, the more pronounced the penetration is for Robinhood users. Carnival is the largest player, so it's not a big surprise to see it on top. However, there's no reason for more Robinhood owners to have a piece of Norwegian Cruise Line -- the distant bronze medalist in this fiscal regatta -- than Royal Caribbean.
Royal Caribbean is the class act in this sea. It routinely posts the strongest profit margins in the industry, and that's going to matter during the current lull and the eventual recovery. Royal Caribbean's stock has also not fallen as sharply as its two peers this year. Investors betting on Carnival or Norwegian Cruise Line just because they have low stock prices haven't fared well in 2020.
2. High risk doesn't translate into high reward
It's mind boggling to see Carnival and Norwegian Cruise Line -- the riskiest of the cruise line stocks -- among the 14 most widely owned stocks in the Robinhood universe. Carnival relies heavily on value-conscious first-time cruise passengers, and that target audience is going to steer clear of an ocean getaway for a while. Norwegian Cruise Line has a more loyal clientele, but as the smallest of the three it has to be the odds-on favorite as the first to buckle if a shakeout happens.
The industry is already scaling back its fleet. We're seeing new ship deliveries get pushed out, and Carnival announced last week that it will be disposing several of its vessels. All three companies have taken extreme measures to raise billions apiece to stay afloat through this crisis, but that will make it that much harder to return to last year's peak profit-per-share levels.
Carnival should not be the country's eighth most popular stock holding; thankfully that is only the case with Robinhood investors.
3. Turnarounds take time
It's not just cruise lines that are owned at dangerous levels on Robinhood. A pair of struggling airline carriers have even broader ownership among the platform's speculators. The top stocks on Robinhood right now are an odd assortment of out-of-favor industries.
Turnarounds don't happen overnight. It will take a long time before airlines are profitable again, and the timeline for the cruise line players has to be even longer. The cruise industry restart dates keep stretching, and even then it won't be easy to fill ships with skittish passengers during a global recession. Speculators are -- by definition -- impatient, and that strategy isn't going to work with cruise line stocks.