Royal Caribbean (NYSE:RCL) just got its head back above water. In fact, since May 11, RCL stock has exploded from $37.78 to about $52. Even now, it’s still a very solid opportunity. And if it can stay afloat, as the economy recovers, I strongly believe it can refill its gap around $108.
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The last time I weighed in on oversold cruise stocks, I said Carnival (NYSE:CCL) was a solid blood-in-the-street opportunity. That was May 11, as the CCL stock traded at $14.21. It rose to about $18 and is trading at about $15.
However, it’s not the only sunken cruise stock to consider. Plenty of patience will be required, of course.
RCL Stock Losses Were Expected
At the moment, there’s still a no-sail order still on the books from the U.S. CDC effective through July 24. However, there’s hope that will not be extended and that Royal Caribbean can resume operations by Aug. 1.
If the cruise lines can get back to sea, and the economy can successfully reopen, I strongly believe RCL stock could do well this year.
It wasn’t a shock that Royal Caribbean posted a sizable first-quarter loss. After all, the novel coronavirus ground the cruise industry to a halt.
The company posted a loss of $6.91 a share in the quarter, as compared to EPS of $1.31 year over year. Adjusted, the company lost $1.49 a share after earning $1.31 a year prior. Revenue fell 17% to about $2 billion. “The magnitude, duration and speed of COVID-19 remains uncertain,” and it “can’t estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results with reasonable certainty.”
However, I believe that bad news is priced in, and that it may be smoother sailing from here.
Time to Consider Cruise Stocks
Credit Suisse’s Benjamin Chaiken just initiated coverage of the RCL stock with an “Outperform” rating, giving it a price target of $67. None of the major cruise lines, he argues are at risk of running out of cash.
“[Cruise stocks] are at all-time lows, and all three operators are now in cash preservation mode, having entered into liquidity enhancing credit agreements. With the risk of a liquidity crunch partially priced in, we think current levels offer an attractive entry point.”
Wedbush analyst James Hardiman says the RCL stock is in good financial position, too.
“RCL seems to have given itself maximum flexibility/optionality with respect to its capital needs, and may yet avoid the significant amount of equity dilution that has befallen its two peers. Additionally, we would argue that RCL had the best momentum headed into the pandemic and see no reason this will not be the case coming out of the pandemic.”
Hardiman has a “Outperform” rating on the stock with a target price of $63 a share.
At the same time, cruise bookings are soaring. Carnival, for example, says bookings are up 200% year over year with travelers seemingly desperate to take a vacation.
Fear Is Priced Into Cruise Shares
While the cruise industry has been hit hard by the coronavirus outbreak, much of that fear has been priced into oversold cruise stocks. Most will survive, and have become buying opportunities. In fact, the time to buy stocks like RCL is when they’re the most hated.
Some of the best investors have said the same. As we’ve learned from Baron Rothschild, who would tell investors, “The time to buy is when there’s blood in the streets, even if the blood is your own.” Even Sir John Templeton would tell investors to buy excessive pessimism, which we see now.
If you wait too long, you’ll miss the recovery rally.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, he did not hold a position in any of the aforementioned securities.
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