Thinking about shorting the cruise line stocks? Maybe. Here are some things to think about in $CCL $RCL $NCLH (March 09, 2020)
RCL CCL NCLH DAL AAL UAL CCL
Just a quick look at the cruise ships, here’s why: One of our members asked if these are still good to short? First of all, no. From a risk standpoint, no. I am looking at the chart and this thing is so stinking oversold, it is just unbelievable.
However, if you look at where this now, RCL ( NYSE: RCL ) was at this level just a few years ago when there were no issues involved. Now there are huge issues and the stock is down to this level in 2014. Well, why can’t if fall to this level? Has the cruise business picked up that much between here and here? Has it really picked up that much? I would say I don’t know but the market doesn’t know either.
This is what I do know: Shorting stocks this far down can be really problematic you could just get crushed. But with that said, I don’t know when the good news would be that would actually bring buyers into these stocks other than for short-covering rallies. You can see here, the dividend is almost 5 percent, which is a monster dividend for RCL ( NYSE: RCL ).
However, their debt-to-equity ratio is 75 percent. That means with a dollar’s worth of stock they have $75.00 in debt, and this is the absolute epitome of a cash flow business. These guys take on huge debt to get their ships and this and that and the other thing. But then they get a lot of money, a lot of the “boomers” here; I’ve been one of them, though cruises aren’t really my thing. A lot of the “boomers” like the cruise ships and they go there and do whatever it is that you do on a cruise ship.
The typical customer for these cruises is what demographic? Seriously, it is the very demographic of people that are at the highest exposure to having big problems with Coronavirus. If you are old and you have respiratory problems, that’s a big deal. Younger people, it’s not that big of a deal, I shouldn’t say it’s not that big of a deal and I am definitely not minimizing the Coronavirus or COVID-19, whatever the heck you want to call it, the plague. I am not minimizing that, I am just saying that with a certain population, older people, it is a much bigger deal. Well, the older people are the ones that like to go on cruises.
I think that things are going to get worse for these cruise lines before they get better. I do actually think that the stocks are going to go much lower. Does that mean I would short the stocks? Honestly, I have my rules in shorting and this violates every single one of them if I am going to short this stock.
CCL, Carnival Cruise ( NYSE: CCL ). They are better in that they only have 32 percent debt-to-equity; oh, so I will buy this. Why? Why do you want to do that? Norwegian Cruise ( NYSE: NCLH ). Oh, I will get this; it’s under $20.00. It’s under its IPO. Right; and their debt-to-equity, 89 percent.
In other words, all of these companies are in big, big, big, big huge trouble. And it is not the kind of trouble where you can look at it and say, “Well, guess what? It’s just demand deferred. Once we get through this then people are going to come back to the cruise lines and all of these companies are going to start making money.” Yes, they are, but that is not really deferred demand, this is lost demand here.
The same people that aren’t going to take a cruise now might not necessarily be the ones that are going to take it in a year or two or three. It is kind of like a missed opportunity, a missed window. If they were going to go on vacation and take a cruise and now they say, I am not going to do that. What do they do? They do something else. They have other alternatives. I don’t know what those other alternatives are, I am not going on vacation with you so have a good time. But I am darn sure not going to go on a cruise with you.
The bottom line is, I look at these stocks and sure I think they are going lower. Does that mean I would want to short them? No. For all we know the treasury might come out and say, “We are eliminating taxes on cruise lines” or some other thing. It is in everybody’s vested interest to have these stocks go higher. And that goes the same with all these airline stocks ( NYSE: DAL ), ( NASDAQ: AAL ), ( NASDAQ: UAL ), it’s in everybody’s vested interest to get these things back up.
And so don’t think for a minute that you look at this type of thing and say, well not the jig is up, all of these things are screwed. These things are going to zero because Trump or because the virus or whatever. There is every reason in the world to expect the government and big money to come in somehow some way to prop these things up. If for no other reason than to make you the ultimate bag holder and dump that stock onto you because you think it’s a great deal while they actually know it’s not, they just got too much stock.
So don’t be that guy. Don’t try to short these still on the way down. But don’t try to pick them right up at the bottom either. I would rather catch the in-betweens. In other words, let the real-risk takers take the first 10 percent of a big move, of a big snapback rally. Let those guys take that. You wait until the coast is clear until you know that the selling is over. You will be able to know when it is over, you just won’t know that day, maybe even the day after that. But within a couple of days you will know that the selling is over and that is when you start coming in. That is when you start coming into this. But for now, I think they are too hot to short and it’s too early to buy.
Free Chart