Travel stocks: Cruise line shares rise, casino stocks jump

Yahoo Finance anchors discuss cruise line shares rising and casino stocks soaring in the wake of Omicron news.

Video Transcript

- Meanwhile, the backdrop for the airlines over the past couple of days does seem to be improving, at least if you're looking at the stocks. We have seen a broad based rally in the travel industry, whether you're talking about airlines or hotels, basically anything leisure and hospitality. And that's as the initial-- some of the initial shock and fears about the omicron variant do seem to be dissipating, as we both have that Glaxo news, but also more data coming in showing that perhaps omicron is not triggering really severe illness. Brian Cheung, it's been interesting how reactive, I guess these-- maybe I guess it's not surprising at all how reactive these travel stocks have been.

BRIAN CHEUNG: Yeah, certainly, I mean, right now it looks like a Royal Caribbean up about 3/10-- or rather, 3/4 of a percent. I mean, a lot of these cruise line stocks have been really, really getting a benefit off of some of these, like I described earlier, less negative headlines around the omicron variant. But of course, when you take a look at a two-year chart, look, these stocks are still very far below where they were in 2019. When you take a look at Royal Caribbean, trading at about 40% lower than where it was in 2019, Carnival and Norwegian each about 60% lower than where their stocks were over that time horizon.

And it's a similar story with the airlines as you were just kind of discussing with Adam, but it's interesting because the broad travel story, at least when you're looking at the stock prices, doesn't appear to reflect the volume of people that are actually getting out there. Again, when you take a look at, for example, TSA throughput, which might be a little bit more applicable to airlines than to cruise lines-- but I was looking at the statistics just for yesterday's travel day, we're at about 83% of pre-pandemic volume. And that tells me that kind of the shortfall that we've seen at least in the stock price is not reflective of the return that we've already had to travel at least here in the United States.

Now of course, there's a number of other factors that come into a stock's price beyond the number of feet that are on-- on board a ship or on board a plane, but this kind of reflects the fact that it's definitely possible that some of these investors could see more upside growth from here, especially if the omicron variant and future variants end up being more benign, especially with the vaccines that we have available. So we'll see if that story remains the case. But again, these stocks are still very much underloved right now.

- And if one is a fundamental analysis fan and is playing these cruise line stocks for a holding period of more than 10 seconds, aka, they're not trades, you know, I've been doing some work on the names recently, and there are two red flags worth highlighting. One in discounting is starting to pick up in the cruise line industry, Royal Caribbean Carnival cruise line. That is a major concern, because historically once the cruise line start discounting, it does take a while for them to raise prices up again in large part-- of course, they're discounting because they're trying to get people back onto these ships when they start going out there in more aggressive manners next year.

And number two, there are a lot of new ships coming to market next year. Now keep in mind, a lot of these ships were ordered well before the pandemic. It takes a while to build some of these ever-increasingly large ships. So I am wondering how that increase in industry capacity will be received by the market next year as travelers are still trying to figure out if they even want to get on these ships during the pandemic.

- Yeah, there's a lot to consider there. One final note, the casinos as well are moving this morning, particularly the ones that are exposed in Macau. And that's after the Hong Kong Executive Carrie Lam said that they would prioritize quarantine-free travel once the border with China reopens. Now we don't know exactly when that's going to happen, but nonetheless, it looks like there's some relief in those casino stocks this morning.