The S&P 500 Index (SNPINDEX:^GSPC) finished trading up 9 points, a gain of about 0.27%, on Aug. 10. But while the index itself was relatively flat, travel, hospitality, and casino stocks were absolutely booming today.
Leading the bidding higher was MGM Resorts International (NYSE:MGM), up 13.8% on news that a big investor took a $1 billion stake in the casino and resort operator. Airline stocks also soared higher, with United Airlines (NASDAQ:UAL) shares rising the highest, up 9.4% following TSA's latest airport-screening counts over the weekend.
Cruise-line stocks floated higher today as well, with Royal Caribbean (NYSE:RCL) shares leading the flotilla: It was up 10% after reporting earnings that seemed to give investors hope for the entire industry.
Shares of troubled oil giant Occidental Petroleum (NYSE:OXY) also climbed today, up 6.7%, ahead of its second-quarter earnings report after market close.
Media giant makes billion-dollar bet on casino industry
Media giant IAC/Interactive (NASDAQ:IAC) just bought a 12% stake in MGM Resorts, sending MGM shares up sharply on the news. IAC's CEO and chairman wrote a joint letter disclosing the investment, in which they cited MGM's brand, physical presence, and online operations.
Earnings, positive travel news sending cruise-line and airline stocks higher
The Transportation Security Administration gave investors reason to flock into airline stocks today, reporting that more than 800,000 travelers went through screening checkpoints on Sunday. This is the most travelers in a single day since March 17, and a massive jump from the low of 87,534 on April 14. Total travelers Friday through Sunday were just under 2.28 million.
Investors acted quickly on the news, sending shares of every airline in the S&P 500 up at least 5%. United led the way, up 9.4%. Here's how its peers finished:
- Delta Air Lines (NYSE:DAL), up 8%
- American Airlines Group (NASDAQ:AAL), up 7.44%
- Alaska Air (NYSE:ALK), up 7.2%
- Southwest Airlines (NYSE:LUV), up 5.14%
Boeing (NYSE:BA) shares gained 5.4% on the day, likely riding the tailwinds of higher traffic for commercial air travel, and hopes that demand for the still-grounded 737 MAX will recover more quickly than expected if air travel continues to bounce back.
Yet even with the gains the TSA reported, investors should step lightly. Air travel over the weekend was still down 70% from the same weekend last year, and the industry remains in deep financial trouble.
Cruise-line stocks surged today after Royal Caribbean's second-quarter earnings report and call. The cruise giant reported a much bigger loss than expected, $6.13 per share, and continues to burn more than $250 million in cash every month. But despite the mounting losses, investors seem to be paying attention to the surprising $176 million in revenue the company earned in the quarter.
It looks like -- much as with the TSA traveler data -- investors are grabbing onto anything that offers hope of a recovery. In this case, it was higher-than-expected revenue, indicating there could be substantial pent-up demand for cruising once Royal Caribbean returns to the seas.
But it's not going to be only smooth sailing from here. The CDC (Centers for Disease Control) still has cruise ships on a "no sail" order, and it's possible that will be extended as the coronavirus pandemic worsens. The large operators have all managed to get significant cash reserves on their books, but at their current burn rates, they'll all have massive debt loads to deal with, even once the pandemic abates. Like a melting ice cube, their margin of safety gets a little smaller with each passing month, and the risk of permanent losses for investors grows bigger.
Oxy earnings: Buy the rumor, sell the news?
Occidental Petroleum shares gained nearly 7% during trading today as investors anticipated second-quarter earnings after the bell. However, once the release dropped, the after-hours sell-off started, with shares down about 5%.
Why the big drop? In short, an expectedly ugly quarter. Oil demand and prices cratered in Q2, and Oxy lost $8.4 billion as a result. The bulk of those losses was $6.6 billion in impairments, largely reducing the value of oil and gas assets.
The company said it lowered its cost structure by an expected $1.5 billion, but investors continue to focus on the biggest risk: debt. Oxy still has a substantial amount of debt coming due in the next couple of years, but limited access to capital. In June, the company sold $2 billion in bonds, all paying 8% or higher interest rates.
Can the company cut and refinance its way out of a self-inflicted mess following the Anadarko acquisition? As it stands now, the cost is looking extremely high, and there's still a very real risk that bankruptcy may be the only way forward.
In a relatively quiet week, notable names set to announce quarterly results include food-service distribution giant Sysco (NYSE:SYY), reporting Aug. 11; networking and communications equipment maker Cisco Systems (NASDAQ:CSCO), reporting on Aug. 12; and luxury fashion retailer Tapestry (NYSE:TPR), reporting on Aug. 13. Check back here for a closer look when earnings are released.