Hey everyone, Joshua Rodriguez, founder and CEO of the Alpha Stock News parent company, CNA Finance, here. I’m writing to let you know that I’ve added Carnival Corp. (NYSE: CCL) to my investing portfolio. Here’ why:
Check out Joshua’s investing portfolio here.
A COVID-19 Vaccine Is on the Horizon
The COVID-19 pandemic has been a painful reality for all, but has been especially painful for cruise line operators like Carnival Corp. However, we’re starting to see a silver lining to the dark cloud.
Recently, Pfizer (PFE) and BioNTech (BNTX) announced positive data from a clinical trial of their COVID-19 vaccine candidate. The vaccine proved to be effective in about 90% of patients it was given to. Based on these strong results, I expect that the FDA will provide Emergency Use Authorization (EUA) by the end of the year, and likely within the next few weeks.
I also believe that the COVID-19 vaccine developed by PFE and BNTX will be widely available within the next year. This bodes well for CCL and its peers.
After all, consumers have been stuck at home, the vast majority forgoing summer vacations and holiday vacations for fear of contracting COVID-19. Once a vaccine is widely available, these couped up consumers are going to not only be willing to travel, they’ll be itching for it. As such, once a vaccine is widely available, I’m expecting a dramatic increase in demand for the services provided by CCL, leading to a substantial increase in revenue.
Pre-COVID-19 Dividend Yield
Prior to COVID-19 Carnival Corp. was a great dividend payor. In fact, the stock consistently had a dividend yield over 3% and recnetly, paid dividends with a yield well over 4%. Strong dividends show financial stability and market dominance, and that’s exactly what CCL’s pre-COVID-19 pandemic showed.
With the COVID-19 pandemic likely to be behind us within the next 18 months, and consumers having access to vaccines within the next 12 months, it will be back to business as usual at CCL before you blink.
Throughout 2020, Carnival Corp. stock has traded like the COVID-19 pandemic was here to stay and the only value CCL had was the value of the assets it held. Year to date, the stock has given up well over 60% of its value. I believe this is a severe overreaction.
Recently, Carnival announced an offering that will give it the funding it needs to make it through the rest of the COVID-19 pandemic. Post-COVID-19 pandemic, the company will likely quickly get back to business as usual, driving stock prices higher. In fact, I believe that within the next 12 months, CCL stock will be trading at $45 per share, representing a potential upside of about 188%. Read on to learn more as to why.
The World’s Largest Cruise Line
Carnival is the world’s largest cruise line operator. That was the case prior to COVID-19 and will be the case following the pandemic. Once consumers are able to leave their homes and venture on vacations, they’re likely to turn to a name they can trust.
With Carnival controlling about 45% of the cruise line market share, they’ve become a household name, giving the company a clear competitive advantage in a COVID-19 recovery.
Low-Cost Business Model
Carnival’s claim to fame is relatively low cost cruises that travel for shorter durations of time. This is going to be key to the company’s dominance in the COVID-19 recovery. Cruise goers know that Carnival is a low cost, quality cruise option.
COVID-19 has been painful on the pocketbook of the average consumer. However, that’s not going to keep people home once a vaccine is available. Instead, consumers will look for lower cost options, increasing demand for the exact types of cruises offered by Carnival, which I believe will result in a significant revenue increase beginning in mid-to-late Q1 of 2020.
Cruise Freeze Benefits
The CDC has a no-sail order in place in the United States. As a result, cruise lines are not able to sail to, or from, United States soil. At first glance, this isn’t good news for any participant in the cruise industry, including CCL. However, it will have some benefits.
When you were a child, and you weren’t allowed to have a piece of candy, it felt like your life now revolved around that candy. You might have cleaned the bathroom, done the dishes, or mowed the lawn just to say, “see what I did, can I have the candy now?”
The fact that consumers are not allowed to go on cruises right now may result in a psychological reaction. As soon as cruises do become available, consumers will be like the kid that just earned his candy. They simply won’t be able to ignore the allure of a cruise.
The Bottom Line
The bottom line here is that COVID-19 has haunted Carnival since its onset early this year. Nonetheless, I believe that the massive declines have created an opportunity. At this point, there’s a time line to potential vaccine availability and once COVID-19 is behind us, the cruise line industry is likely to boom. As the leader of the industry, CCL will be the primary beneficiary of the change in tides, which is why I’ve risked my own investing dollars to buy it!
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