Travel and tourism are arguably the hardest-hit sectors in the economy during the coronavirus pandemic because governments around the world have instituted locking and travel restrictions to slow the spread of deadly infections. But while the crisis is far from over, everything will eventually return to normal. And if you believe in an industry recovery, this might be the ideal opportunity to scoop up this stock when the price is still very cheap.
Here are three high-quality travel stock that are ready to run. The first choice, Southwest Airlines (NYSE: LUV), is betting on the revival of the U.S. airline industry. While the other two, Carnival (NYSE: CCL) and Norwegian Cruise Line (NYSE: NCLH), are based on a rebound in cruise tourism. The three stocks will soar because the travel industry is bouncing back from the pandemic.
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Southwest has been under pressure since Warren Buffett revealed his decision to sell his position at the Berkshire Hathaway investor meeting on May 2. This news (along with the pandemic) has sent shares falling around 47% this year. But while the aviation industry faces severe short-term challenges due to travel restrictions and poor consumer sentiment, Southwest is ready to rally thanks to a strong business model and a strong balance sheet.
Southwest has a lean operation that has seen it make profits for 47 years in a row. The company also has a reputation for good customer service, according to the airline’s 2019 scorecard. It reported $ 5.5 billion in cash and short-term investments at the end of the first quarter versus $ 5.1 billion in long-term debt.
This financial strength puts it in a good position to withstand the crisis and benefit from a rebound in domestic travel when the industry recovers. The company has added $ 6.8 billion to its cash reserves so far this year, including $ 3.3 billion in funding from the federal government under the CARES Act. The company will also benefit from the 737 Max recertification, which CEO Gary Kelly believes will occur in the fourth quarter of 2020.
Carnival is one of the victims of high-level pandemic corporations. The company suffered several major disease outbreaks on its Princess shipping lane and recorded a $ 731 reduction in goodwill in the first quarter after writing down the value of the ship. These challenges have sent stocks down more than 70% this year. But Carnival has enough liquidity to sail through a pandemic.
The company raised a large amount of capital to help it overcome the crisis. The company made a public offering of 62.5 million shares at a price of $ 8 and a debt increase of $ 4 billion in 11.5% senior notes, along with $ 1.75 billion in 5.75% of senior convertible notes, both due in 2023. According to CEO Arnold Donald, Carnival has enough cash to reach until 2020 and even generate zero income for the rest of the year, the worst case scenario.
On May 4, Carnival announced plans to resume North American service on August 1, but this would depend on whether the CDC lifted a sailing ban at the time. But even if Carnival doesn’t sail for the rest of the year, 2,021 bookings are strong according to CEO Arnold Donald. This shows that there is a significant pent-up cruise demand among consumers, and cruise ship operators can quickly return to profit when restrictions are lifted.
Norwegian Cruise Line
With a market capitalization of only $ 3.6 billion at this writing, Norway is the smallest of the three cruise ship shares listed in the U.S. And like his Carnival and Caribbean Caribbean colleagues, the company has been hit by a pandemic. Stocks have fallen about 75% year-on-year, and the company recently released a Securities and Exchange Commission submission that highlights uncertainty about its ability to continue. Excessive pessimism has created a situation where risk-tolerant investors can take stock at the lowest price to benefit from a rebound in the industry.
Although bankruptcy is possible, it is very unlikely because Norwegians can survive for more than 18 months with zero income, according to CEO Frank Del Rio.
Norway expanded its liquidity to $ 3.1 billion on May 14 as income. And the company drastically reduced operating costs by shortening work weeks, cutting salaries, and cutting about 20% of shore employees by July 31. Overall, this effort is expected to reduce costs to $ 70 million to $ 110 million per month, helping the company preserve its value. cash until the industry returns to normal.
While Norway remains a risky investment, there are already signs of hope. According to management, 2021 bookings are in a historical range compared to the same period last year, further supporting the possibility of demand to recover quickly when the threat of a pandemic fades.
Take it home
The travel and tourism industry is a high-risk, high-reward place to invest now. Its recovery is very dependent on factors outside the company’s direct control such as government restrictions and the potential of the coronavirus vaccine. But lockdowns have abated worldwide, and several companies are racing to develop medical treatment for COVD-19, with some in Phase 2 testing.
In the long run, travel and tourism are a big part of the U.S. economy. – accounted for 7.8% of GDP in 2018. Although inevitable changes will be a challenge for the sector, the strongest companies are here to survive. Investors with a healthy appetite for risk and volatility can take advantage of this opportunity to scoop up top travel and tourism company shares at low prices.
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