The stock market has been sensitive to the ups and downs of the COVID-19 pandemic. With many businesses having remained closed for months during the second quarter, investors are understandably nervous about how the just-started earnings season will go. Yet positive news from a biotech company on the hunt for a COVID-19 vaccine raised new hopes that more extreme measures to eradicate the coronavirus might not prove necessary. Stock market indexes climbed as a result. Just after 11 a.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 239 points to 26,882. The S&P 500 (SNPINDEX: ^GSPC) gained 23 points to 3,221, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was higher by 15 points to 10,503.
Cruise ship operators have been among the companies damaged the most from the pandemic, and it could still be months before companies start to get their ships back out to sea. Yet shareholders in Carnival (NYSE: CCL), Royal Caribbean Cruises (NYSE: RCL), and Norwegian Cruise Line Holdings (NYSE: NCLH) would arguably stand to gain the most from a viable vaccine to fight COVID-19. That's what's driving gains of 12% to 16% in those stocks, and there could be even bigger gains if more progress toward a permanent solution gets made.
Volatility is making cruise ship shareholders seasick
To some extent, the entire stock market is on pins and needles with every new happening related to the coronavirus. That's been amplified in the cruise industry, which largely remains closed until companies can demonstrate that they can find a safe and effective way to operate in the current environment.
Just looking at the swings that Carnival, Royal Caribbean, and Norwegian have gone through recently:
- Last Wednesday, cruise ship operators saw their shares soar on news from Norwegian and Royal Caribbean that they were hard at work developing safety protocols that would allow them to operate safely even without a permanent solution to COVID-19.
- Friday brought more gains to the industry, as Carnival reported some strategic moves designed to improve its liquidity and potentially reduce the rate at which the cruise operator is burning through its current cash hoard.
- On Monday, cruise stocks were sharply lower when the state of California reversed course on its reopening plans and went back to implementing restrictions on certain parts of the state economy.
When you balance out the rises and falls, though, they tend to add up to only modest progress for shareholders. Norwegian, Royal Caribbean, and Carnival are all well off their lows from March and April, but they've also failed to reclaim very much ground from their initial losses since the beginning of 2020.
What's next for cruise stocks?
Investors are hopeful that things could get back to normal if a COVID-19 vaccine is discovered. Yet that's still a long way off, and the three major operators still have to make it through an extended period of closures.
The cost of raising more capital has gotten extremely high. Carnival recently said it would seek to borrow another $1 billion, but investors expect double-digit interest rates in order to entice bond buyers to take on the risk.
In the end, cruise companies need to come up with plans for every contingency. If the coronavirus sticks around for a while, then they will need to take measures like operating ships at reduced capacity and improving health and safety facilities onboard vessels. They'll also need to keep giving their passengers a lot of flexibility by allowing them to cancel and rebook trips freely amid all the uncertainty.
Until the COVID-19 pandemic starts to improve, cruise ship stocks will remain under pressure. Shareholders are rooting for a vaccine to solve all their problems, but it might not come in time to prevent lasting financial damage to Carnival, Norwegian, and Royal Caribbean.
10 stocks we like better than Carnival
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Carnival wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of June 2, 2020
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.