17 April, 2020, | AtoZ Markets – The COVID-19 outbreak, the novel coronavirus outbreak which originated in China but has since gone global, is a big deal. Until today, it has infected over 1.5 million people across the globe, killed nearly 100,000, kept billions of people in their homes, brought the global economy to a screeching halt, and caused most of the worldwide stock markets to fall off a cliff.
Social distancing and quarantine measures have created a massive problem for businesses all over the world. All gross domestic product (GDP) estimates until this point is now useless. The forecast went from growth to recession in the blink of an eye. In the meantime, some tech stocks have shown some relative resilience, but still, no business will avoid suffering significant losses this year.
For investing, it is crucial to identify sectors that have the potentiality for future price growth. Most of the retail investors are the last man to join any price rally. Only wise investors seek for a low price with a high possibility of price development while choosing stocks to invest.
During our research, we found several cruise companies that faced a devastating impact due to the COVIT-19 outbreak. However, the decline in price is an excellent opportunity to invest.
Will the Cruise Industry Survive?
The cruise industry has not seemed reasonable for quite a while. Whether it comes back in June, or even later, many people will observe. Some cruise lines will have customer backlogs With credit for future cruises for cancellations. That may bring some sailings generated with low cash as cabins may be filled by people who aren't paying for it. In this situation, some companies are still taking bookings for futures.
The company that has a strong base of customer satisfaction might come back after the COVIT-19 pandemic. For buying stocks of cruise companies, therefore, it is crucial to see how companies are taking action to overcome the current effect.
The coronavirus pandemic has led to a loss for Royal Caribbean, Carnival, and Norwegian Cruise Line. All these companies have handled the effect of COVIT-19 in different ways, with Royal blowing its credit line, Carnival raising $6 billion on unfavorable terms, and Norwegian not having taken any steps.
Are they right to buy?
Let's find out!
Cruise Ship Booking for 2021 is Increasing
Cruise ship bookings are increasing for 2021, according to several indicators, despite the outbreak of COVID-19 on cruise ships.
From March 2020, many cruise ship companies faced severe COVID-19 outbreaks onboard. Therefore, in many cases, they were not sailed for days before finding a place to let them dock and offload passengers. According to CruiseCompete.com, there was a 40% increase in the 2021 cruise booking compared to 2019.
According to that website, the demand for post-pandemic cruise booking is still strong. It is an encouraging sign for cruise companies that are currently facing a huge financial hit by watching their market value plunge.
A recent analysis from Swiss bank UBS also found that in the last 30 days, the cruise bookings for 2021 was up by 9% compared to the reservation for 2020. The increase in booking for 2021 is boosted by the number of people booking brand new cruises compared to rebooking canceled cruises.
UBS also reported that 76% of the canceled cruise bookings in 2020 had been selected to accept credit for a future cruise in 2021, while 24% of them agreed to a refund.
According to CruiseCritic.com, a poll by LA Times showed that 75% of 4,600 cruise customers said they have a plan to continue cruise booking with the same rate as before, compared to 24% who said they have an idea to book cruises less than before.
A Harris Poll, also released on March 31, found that the demand for cruises may bounce back at a slower rate compared to hotel and airline bookings.
What are Best Stocks to Invest after COVIT-19?
Now countries are increasing COVID-19 testing, and infection numbers are growing. Hopefully, death rates may become slow with positive news to the weary-eyed society. Besides that, medical communities are working hard to develop COVID-19 vaccines and therapies to treat the disease.
Three potential cruise companies are trading at significant discounts from 52-week highs as of the close on April 3:
- Royal Caribbean
- Norwegian Cruise Line
Let's have a look at them one by one:
Most of the cruise line stocks are getting crushed by the coronavirus. However, Carnival is the number one to "buy the dip."
Why is Carnival stock the best to invest after COVIT -19?
- Carnival is the most prominent cruise line operator. Until this year, Carnival has generated $34.8 billion market cap, which is 25% higher than other cruise line companies. Carnival also earned nearly $21 billion in revenues in 2019. Therefore, in this crisis, size matters to recover losses.
- The company has big profits. In 2019, Carnival reported an operating profit of $3.3 billion. This number may decline in a big way in 2020. However, the number is significant enough to remain in positive territory.
- On the other hand, Carnival has the best financial position in the group. The company has $11.3 billion in total debt and also has $518 million of cash. Moreover, its net-debt-to operating-profit ratio is the lowest at 3.3X. Therefore, Carnival is one of the best stocks to invest after COVIT-19.
#2 Royal Caribbean
Royal Caribbean is another cruise line stock that has an excellent buying opportunity on the coronavirus plunge.
- It is the second-largest cruise company in the world. The company operates with 19% operating margins. It produced the industry-best of $700 million free cash flow last year. The balance sheet of the company indicates a debt of $9.4 billion. However, the company's 4.5-times net-debt to-operating-profit ratio was very decent in 2019.
- Royal Caribbean might be well-capitalized with large profit margins to fight the coronavirus storm.
- In the near-term, things might get worse than before. More COVID-19 cases may bring a negative impact for the RCL stock.
#3 Norwegian Cruise Line
Another "buy the dip" candidate is the Norwegian Cruise Line.
- The market cap of the company is at a mere $2.3 billion compared to the $6.4 billion for Royal Caribbean. The fewer resources might indicate a possible risk of bankruptcy due to the coronavirus storm.
- Moreover, the company has the worst balance sheet compared to the company mentioned above. The debt is smaller at $6.5 billion, but operating profits are down by $1.2 billion. This means that Norwegian has a risk of insolvency than other cruise line operators.
- However, NCLH stock has some upside potential if things get better. Currently, the stock is down by almost 82.1% year to date. The bearish pressure was intense, where bankruptcy is a real risk here. Overall, the stock is too risky to touch right now, but investors may keep it on the watchlist.
The Decision to Buy Best Stocks after COVIT-19
Carnival has taken decisions to remain at the top of the industry. If Royal Caribbean and Norwegian can manage to do that, they may stay on the top list as well.
Customers will eventually come once the COVIT 19 outbreak ends. Therefore, the increase in travel would bring positive news to the Cruise industry. The reason for choosing as best stocks to invest after COVIT 19 is that it is directly related to the effect of the outbreak. Therefore, the solution to the problem will affect most positively in this industry only.
However, that might not happen quickly. It may take years to make the situation healthy. Therefore, any good news regarding the outbreak of COVIT-19 may create opportunities to invest in cruise stocks.
Think we have missed something? Let us know in the comment section below!