Buying CCL shares means playing Russian roulette with your capital
Are you planning to take a bet on Carnival (NYSE:CCL) and CCL actions? If you are, think again.
New data from John Hopkins University suggests that one in 500 Americans has died since the onset of the Covid-19 pandemic in early 2020. As a perspective, about 49 Americans die each year from lightning. So that’s 1 in 6.8 million people.
So if you want to tempt fate, you might be better off running in the rain during a thunderstorm than boarding a cruise ship with, potentially, no ability to get off for several days.
The problem with buying CCL shares is that no one has a clue of what lies ahead when it comes to the pandemic. What we do know is that people will continue to die at an alarming rate. As of September 14, the United States had an average of 1,805 deaths from Covid-19 per day over the previous week. I’m sure a lot of these deaths are in Florida, where Carnival is based.
This does not constitute an attractive sales pitch from the cruise line.
âCome on a wonderful 7 day cruise through the Caribbean. You might get lucky and die. How’s that for an experience you won’t forget? “
Now is not the time to cavalierly buy CCL stocks. The unknowns Carnival faces are too big, in my opinion, to make the risk-reward ratio of stocks worth it for anyone except the most risk-tolerant investors.
Buying CCL shares right now is playing Russian Roulette with your hard earned capital. Here’s why.
CCL stock and unvaccinated
I’m not sure who’s dumber at this point, CCL stock buyers or unvaccinated ones. Both groups throw caution to the wind. At least the buyers of Carnival shares aren’t going to die because of their pride.
I hope no one dies from Covid-19 because it is a horrible way to end your life.
In the past, I have actually been a big fan of cruise stocks.
âAs I have said on several occasions since Covid-19 crippled the travel industry, the cruise will come back. In addition, as my colleague mentioned with the acquisition of Silversea Cruises, CEO Richard Fain is a rockstar in the industry. Bold moves like buying the rest of the luxury cruise line are a reminder of why he’s been running the business since 1988. â
âOf the five stocks that have fallen more than 50% since the start of the year, RCL is, in my opinion, the one that has the best chance of delivering long-term results to investors. But we will have to be patient.
While RCL shares have risen 53% from my article through September 16, even Richard Fain cannot successfully fight Covid-19. This is also true of Carnival CEO Arnold Donald.
Like another Investor place donor, Josh Enomoto, wrote in early September: âCarnival is a disaster far from Lose everything. “
This is also true for Royal Caribbean and Norwegian Cruise Line (NYSE:NCLH).
Don’t forget the debt
Investor place journalist Dana Blankenhorn recently discussed Carnival’s two Ds: the Delta variant and Debt. In the previous sections I have touched on Covid 19. In this section I will focus on Carnival debt.
The Carnival was sitting on about $ 26 billion in long-term debt at the end of May, excluding capitalized leases. During the quarter, it suffered net losses of $ 2 billion, with $ 1.35 billion in negative cash flow. The good news is that he still had $ 9.4 billion in cash at the end of the period. This can, in theory, go on for another year, âwrote Dana Blankenhorn.
In the graph below, I have represented the financial data of the three major cruise lines.
At first, it looks like Norwegian is in the best position of the three because it has the lowest net debt. However, Carnival’s debt is 3.5 times its cash, while the same ratio is 4.4 times and five times for Norwegian and Royal Caribbean, respectively.
Now I’m going to add a fifth column to the chart. It should change your perspective.
None of them have a flawless track record by any means. However, Royal Caribbean has the lowest net debt to market capitalization ratio.
Interestingly, cruise ships are expensive to build; one would think that this should provide these companies with a fairly wide gap or barrier to entry. But, according to Morningstar.com, all three are considered to have no moat.
Although I don’t agree withMorningstar.com,, the pandemic has undoubtedly revealed that cruise passengers are Emperors who have no clothes. Like Enomoto, the other Investor place Columnist, said companies heavily in debt during a pandemic are a disaster to lose everything.
The only thing that saves these companies is that borrowing money is very cheap and so many people want to buy stocks and / or bonds. If they faced a similar situation 1981, Carnival and his peers have reportedly been bankrupt several times.
With so many stocks available that aren’t as risky, I’m not sure why a sane person would buy CCL stocks right now.
But again, I didn’t think that, faced with the statistic that you are 11 times more likely to die of Covid-19 if not vaccinated, that 25% of American adults would not receive a single dose of vaccine.
As of publication date, Will Ashworth did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.
Will Ashworth has been writing about investing full time since 2008. His publications include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the United States and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. As of this writing, Will Ashworth does not hold a position in any of the aforementioned securities.