Many of the stock market performers in the first half of this year were what anyone who followed the news could have expected.
Big tech companies led the way, led by Nvidia, which makes computer chips that power artificial intelligence programs. This is followed by his Meta, the Facebook owner, touting his AI capabilities for the company. Electric car champion Tesla wasn’t far behind either.
But what were cruise ships doing near the top of their stock market listings?
As of mid-year, Carnival, Royal Caribbean Group Inc. and Norwegian Cruise Line Holdings Inc. were among the top 10 companies in the S&P 500.
Consider just three years ago, when all cruise lines grounded operations during the first few months of the coronavirus pandemic, and the stock prices of listed cruise companies were devastated in the months that followed. let’s
Now, as the epidemic scare recedes and pent-up demand for excursions is released, the fortunes of cruise lines are changing dramatically.
Inconsistent Earnings
After an astounding rally in the first six months of the year, cruise line stocks are still down sharply since early 2020.
According to FactSet, their benefits are:
-
Carnival, up 134% in the first six months of 2023, but down 63% since early 2020.
-
Royal Caribbean Group grew 110% in the first half of 2023, but fell 22% from 2020 onwards.
-
Norwegian Cruise Line up 78% in first half of 2023, but down 63% from 2020 onwards.
A return like this might be puzzling if you didn’t know what happened on Earth in the last three years. But given the pandemic and subsequent economic recovery, cruise line stocks and bonds have performed well.
It’s part of a larger pattern.
Just as cruise lines started to come into their own, a set of companies that thrived during the pandemic are now lagging behind. Peloton, Zoom and Etsy trail behind in this year’s stock market performance derby. And big pharma companies like Moderna and Pfizer, whose stocks skyrocketed at a time when they were supplying rare and desperately needed vaccines against COVID-19, were among the best performers of the S&P 500. One of the lowest companies.
pandemic
In a nutshell, it wasn’t until December 2019 that the first reports of the emergence of the new coronavirus began to emanate from China, and the World Health Organization declared a pandemic in progress in 2020. It was late January. Cruise lines have begun canceling port calls to China.
In January 2020, the Carnival-owned luxury liner Diamond Princess began its ill-fated journey in Yokohama, Japan. More than 3,700 passengers and crew were stranded on board for weeks with little information about the pandemic.
But the virus spread relentlessly, 700 or more People eventually tested positive. Nine passengers died early in the pandemic, when people lacked natural immunity to the disease and effective treatments and vaccines were not yet widely available.
All major cruise lines have suspended operations as passengers canceled their reservations en masse. It has become clear that cruise ships are not the ideal place during a pandemic.
On the stock market, cruise company stocks plummeted as 2020 rolled on. Carnival has fallen 57 percent, Royal Caribbean 44 percent and Norwegian 56 percent in this pandemic year. Both companies had virtually no earnings, had mounting debt, and questioned their ability to continue as a going concern. They survived by taking on huge amounts of debt and paying the very high yields they needed on junk bonds to attract investors.
The pleasant atmosphere required for a successful sea holiday seemed unattainable.
early recovery
It wasn’t until 2022 that the company’s financials and share price stabilized, and it didn’t start reporting enough earnings and cash flow to show signs of reducing debt and returning to a stable profit-generating business. Since the beginning of this year. Carnival CEO Josh Weinstein said in conversations with equity analysts after the earnings call in late June that the company’s business volumes were approaching 2019 levels for the first time since the start of the pandemic. , said some indicators are beginning to exceed. that.
The company’s chief financial officer, David Bernstein, said Carnival was pouring cash into debt relief, “facilitating a total of more than $8 billion in debt relief through 2026,” according to the transcript of the same session. “It’s down from a peak of $35 billion in early 2023,” he said. .
Bernstein said those debt payments and increased earnings will allow the company to move its credit rating “closer to investment grade” in 2026. As Carnival’s financial situation improves, the company’s debt yields are falling and bond prices are rising in the opposite direction.
Of course, the details of each company are important. Cruise lines all have in common measures to strengthen safety procedures, bring new ships into service, take cost-cutting measures, and launch new marketing campaigns aimed at preventing future spread of the disease on board. is embarking on Wall Street analysts, including JPMorgan Chase, Bank of America and Jefferies, gave the company high marks, helping the stock to rise.
Perhaps the magic of ocean cruising will return. Certainly no one wants the tragic events of 2020 to happen again.
In the pre-pandemic period, I have been on some nice cruises. On one trip, her three generations of my extended family were able to see the world together on board, in the water, and on land while participating in age-appropriate recreation separately. Therefore, I am personally happy with the beginning of the sea cruise renaissance, but I am not yet ready to sail again.
As an investor, I see cruise lines’ stock performance this year as a testament to the ever-present need for diversification, rather than a question of whether now is the right time to buy stocks. . What seems safe today can easily become dangerous tomorrow.
Harry Markowitz, a Nobel laureate in economics who died last month, transformed modern investing with his teachings about how strict diversification can reduce risk. Ten years ago, during a period of stock market volatility, ordinary investors would do better to forget about individual stocks and instead buy broad, low-cost stock and bond index funds, he said. told to
Allocate them in proportions that you feel comfortable with and devote yourself to more comfortable pursuits. Markowitz persuaded me. If you’re looking for fun, choose something you enjoy.
Ocean cruises are fine if they are fun and feel safe enough for indulgent voyages at this stage.
