In the five years leading up to its all-time high in January 2018, Carnival(NYSE: CCL) was a winning investment. Its shares jumped 86% during that time.
It’s been a different story since then, though. This cruise stock currently sits 80% below its peak price. That’s even after shares soared 76% since the start of 2023 (as of April 18).
Does this setup on the dip make Carnival a once-in-a-generation investment opportunity? Here’s what investors need to know.
Smooth sailing
Carnival’s business is giving its shareholders plenty of reasons to be optimistic. In fiscal 2023, which ended Nov. 30, the company reported revenue of $21.6 billion, a record figure that was up 77% year over year. This number exceeded the previous record, which came in fiscal 2019.
The momentum carried over into the first quarter of 2024. During that 12-week stretch, the company hit a first-quarter record for sales. Key to this strong momentum is, without a surprise, robust demand from consumers.
“This has been a fantastic start to the year. We delivered another strong quarter that outperformed guidance on every measure, while concluding a monumental wave season that achieved all-time high booking volumes at considerably higher prices,” CEO Josh Weinstein highlighted in the latest earnings press release.
Warren Buffett, who many consider the greatest investor ever, once said that he believes the mark of a wonderful business is one that can raise prices with minimal pushback from customers. Carnival is currently demonstrating this characteristic.
It will be interesting to see if the recent trends are simply a one-hit wonder or a more sustainable development. The bulls are definitely hoping it’s the latter.
But this is a business that is recovering nicely from the worst days of the pandemic. At one point, Carnival was forced to halt its operations temporarily to prevent the spread of COVID-19. Revenue took a huge hit, dropping 91% between fiscal 2019 and fiscal 2021.
Now that the company has bounced back and looks to be on solid footing, I’m sure it’s starting to catch the attention of investors. Shares still trade at a reasonable forward P/E of 14.
Rough waters
It’s easy to say this with the benefit of hindsight, but I don’t necessarily think it’s shocking to see Carnival putting up such strong numbers right now. Unless you were convinced that demand for cruise travel would permanently fall off a cliff, I bet you expected that this business would experience a reversion to the mean.
For what it’s worth, Wall Street believes the good times won’t last very long. Analysts see annual revenue gains shrinking going forward, with fiscal 2026 sales rising by just 1.9% compared to the prior year.
It’s easy for investors to become short-sighted and focus too much on financial results from one year or one quarter. But it’s best to think about the bigger picture, turning our attention to the long term.
To be clear, I still believe Carnival is an extremely risky business to own. As of Feb. 29, the company had a massive debt load of $31 billion. A lot of this capital was raised to buy the company time throughout the pandemic. Management has used cash to pay down the principal. But that’s a huge burden that adds tremendous financial risk should there be economic weakness.
Speaking of the economy, demand for cruise trips demonstrates cyclicality, as it’s a discretionary purchase. I’m concerned about how Carnival will fare in a potential recessionary scenario, which could happen unpredictably.
It might be smooth sailing for Carnival right now, but there are always rough waters to worry about. I don’t believe this is a once-in-a-generation investment opportunity.
Should you invest $1,000 in Carnival Corp. right now?
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
