These 3 Forgotten Stocks Led the Market Higher Friday

Investors were in a great mood on Friday, and gains for major stock market indexes managed to wipe out the big declines from the previous week. The Dow Jones Industrial Average (^DJI -0.98%), S&P 500 (^GSPC -0.46%), and Nasdaq Composite (^IXIC -0.64%) are still way down on the year, and they're even still down sharply for the month of June. Yet investors were appreciative of the break in the bearish action on Wall Street.

Data source: Yahoo! Finance.

It's been a long time since most investors paid much attention to cruise ship stocks. These companies have suffered lingering effects of the ongoing COVID-19 pandemic, and even as ships have set sail again, pent-up demand hasn't eliminated all of their concerns. Yet in today's market move, Carnival (CCL 1.13%), Norwegian Cruise Line Holdings (NCLH -0.21%), and Royal Caribbean (RCL 0.54%) were all among the top performers, all rising double-digit percentages on the day. Below, we'll look more closely at what lifted cruise ship stocks and whether investors can expect the good times to continue into next week and beyond.

A Carnival atmosphere

The good news came first from Carnival, which announced its second-quarter results for the period ending  May 31. There were a lot of favorable metrics that investors liked seeing, although you shouldn't come to the conclusion that the cruise ship operator is out of the woods just yet.

Carnival's good news included the fact that cash flow from operations went positive during Q2. Revenue soared by nearly 50% from the first three months of the fiscal year, and occupancy rose to 69%. Customer deposits were up from $3.7 billion three months ago to $5.1 billion at the end of the quarter, and 91% of the company's ship capacity was in guest cruise operation. Best of all, booking volumes doubled from Q1 2022, giving the company its best quarterly figures since before the pandemic.

However, there's still a long way for Carnival to go before everything is OK. Adjusted net losses for the quarter came in at $1.87 billion, which wasn't really that much better than the $2.04 billion in red ink in the same period a year ago. Having $7.5 billion in liquidity at least means that Carnival might not have to do any dilutive capital-raising in the near future, but it still has to demonstrate it can return to profitability.

Cruise ship stocks are rising -- but for how long?

Other cruise stocks did even better, with Norwegian Cruise Line rising 15% and Royal Caribbean picking up 16%. Yet all of the operators still have headwinds ahead of them.

One important new challenge for cruise operators comes from rising fuel prices. During the early parts of the pandemic, fuel prices were extremely cheap, largely because heavy users like travel companies saw little or no consumption during shutdowns. Now that cruise ship operators actually have ships at sea, costs are more expensive than ever, and even sustainability efforts can't change the fact that vessels burn a lot of fuel.

Questions about an economic recession could have mixed impacts on cruise stocks. On one hand, those without any discretionary income might give up on travel entirely, hurting Carnival and its peers. On the other hand, cruises are often seen as less expensive than other forms of travel, and so some travelers might trade down to take a cruise, feeding demand.

Even with today's gains, cruise stocks are sharply lower from where they were even at the beginning of the year. It's good that ships are sailing again, but the operators have more to do before investors can feel totally comfortable.