Despite a global pandemic, the S&P 500 gained 16% in 2020 while the tech-heavy Nasdaq grew by nearly 44%. Those are stellar returns historically, but not every stock delivered for investors.
Amarin (AMRN 5.15%) and Carnival Corp. (CCL 8.46%) (CUK 8.00%) were two stocks that dragged down returns for those who held them. After a brutal 2020, are there signs of recovery that investors can look forward to in the new year?
Amarin is a $2.4 billion drugmaker focused on improving cardiovascular health. The company's sole product, Vascepa, was approved by the U.S. Food and Drug Administration (FDA) to reduce cardiovascular risks for patients with very high triglycerides. In late 2019, it was approved as a secondary therapy for patients with either cardiovascular disease or diabetes, in addition to other risk factors. Vascepa has proven somewhat controversial, as the product is a formulation of omega-3 fatty acids, which are naturally found in fish oil.
In March, shares fell nearly 70% after a district court ruled against the company, claiming the patents on its fish oil derivative were "obvious." That decision was upheld by an appeals court in September. Although the stock fell 77% in 2020, the company reported year-over-year sales growth in the second and third quarters -- after the initial judgement -- of 34% and 39%, respectively. For the first nine months of 2020, sales of $447 million were 56% higher than the same period in 2019.
Facing generic competition in the U.S., Amarin is now pushing for approval in Europe and China. Management expects approval by the European Medicines Agency (EMA) in early 2021 and is slated to file in China soon, since reporting positive phase 3 data in November. Meanwhile, the company continues to fight in the U.S., filing a patent infringement lawsuit against generic drugmaker Hikma, asserting the company is marketing its generic replacement for Vascepa beyond what is allowed.
So far, Amarin isn't seeing any slowdown in U.S. sales and its prospects for approval abroad are good. Investors seem to be catching on that all is not lost. So far in 2021, the stock has climbed 26%. Litigation may play a large role in how the stock performs this year, but measurements of business performance are still flashing green. Buying shares comes with significant risk, but risk-tolerant investors may want to take advantage of the market's seeming overreaction last year.
Cruise lines were in a uniquely terrible situation in 2020. One of the earliest images of the pandemic was of the more than 3,700 passengers on the Diamond Princess who were held aboard the ship in quarantine for more than a month. The Centers for Disease Control (CDC) then instituted a "No Sail" order in mid-March 2020, only lifting it conditionally on Nov. 1. Carnival, the largest U.S. cruise company, raised $19 billion to stay afloat through debt and stock sales during the difficult year. While those actions were necessary, they leave the company with a hangover heading into 2021. Management expects interest on the company's $28 billion in debt to cost about $1.6 billion per year. Carnival only averaged about $2.1 billion of free cash flow in the four years leading up to the pandemic, so even when business returns to normal there isn't much financial flexibility for share buybacks or dividends. That's in a best-case scenario. Currently, analysts are only calling for revenue to get back to 2018 levels by 2022. That difficult equation is likely why shares fell 57% in 2020.
However, the stock is up over 160% from the bottom in April, likely on optimism that the company will make it through the pandemic at all. In addition to raising capital, management has scrapped 19 ships and delayed 16 others in order to reduce future capital requirements and operate only the most efficient boats. Even so, the efforts have been focused on survival, not shareholder returns. Anyone buying Carnival stock must believe the cruise industry will get back to pre-pandemic levels much faster than the consensus or be willing to hold for years while the company digs out of the hole it finds itself in.