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The cruise review site Cruise Critic saw a 40% increase in cruise buyers in January compared to December.


Photo:

Ore Huiying / Bloomberg News

If you are bewildered by the wild recovery of so-called “reopening” stocks, you are clearly overthinking. Yes, sectors like hospitality, amusement parks and casinos are booming, even as incomes remain severely depressed. But the markets’ new mantra seems to channel the age-old design principle: “Keep it simple, stupid.”

Look no further than cruise stocks. Shares of the three major cruise lines have risen an average of 53% over the past six months, even though there has been no real industry reboot. Like Royal Caribbean RCL 4.43%

The group’s chief executive, Richard Fain, said on Monday on his company’s fourth-quarter conference call that most of its ships were still inactive after nearly a year and that most of its global operations had been suspended in the less until April. Meanwhile, Carnival Corp. has apparently decided that if he can’t sell cruise tickets, he’ll just sell shares instead. The company said on Monday it was raising $ 1 billion in common stock, also indicating strong investor demand for the marginalized sector.

Hope floats, apparently. Estimates compiled by Visible Alpha show analysts predict Royal Caribbean’s revenue will remain down 74% from 2019 levels this year and will not exceed pre-pandemic levels through 2023. The analyst of UBS Robin Farley argues that though bookings appear to be down for the second half of this year. year on an absolute basis compared to a normal year, the booking volume is likely to be well above the service capacity, given the cruise lines’ plan for a gradual reentry of some ships at a time. She also noted that cumulative advance bookings for the first half of next year are in historical ranges and appear to be at higher prices, a sign of pent-up consumer demand.

An analysis of booking trends by the cruise review site Cruise Critic is also encouraging. The site said it saw a 40% increase in cruise buyers in January compared to December, with the majority of travel bookings this year rather than next year. But future cruises may depend on a certain protocol in place: 81% of Cruise Critic readers surveyed in January and February said they would go on a cruise if there was a vaccination requirement to sail. While it is still unclear what the regulations will be for future cruise passengers, Royal Caribbean’s Mr Fain referred to vaccines as “the ultimate weapon” on Monday.

Deutsche Bank analyst Chris Woronka argued in a note this week that it was historically “unwise to fight a thesis trade” – in this case a pent-up vacation demand – regardless of consensus expectations. The risk, he notes ironically, is that analysts’ forecasts catch up with or even exceed those of investors. It would disappoint inventories if actual profits were lower than estimated once cruising resumed.

The more positive analysts give these stocks, in other words, the riskier it becomes to invest in those stocks. When it comes to analyzing salvage trading, the perfect can be the enemy of the good.

For nearly five decades, Carnival has built a global fleet of cruise ships. But in the face of a pandemic, health officials and passengers are questioning whether operators like Carnival can navigate safely. Carter McCall of the WSJ explains. Photo: Getty Images

Write to Laura Forman at laura.forman@wsj.com

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Appeared in the print edition of February 24, 2021 under the title “Oregon Stocks Threatens Cruise Carnival”.



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