CNBC’s Jim Cramer advised investors Tuesday to hold off on buying shares of cruise line operators, citing the continued uncertainty during the coronavirus pandemic.
“It’s still too soon to speculate in the cruise stocks. Their domestic ships won’t start sailing again until December at the earliest, and I think there’s a good chance that gets postponed again,” the “Mad Money” host said.
“If you really want cruise exposure, I say be patient, because days like today make me think you’ll get better buying opportunities,” added Cramer, following a Tuesday trading session in which the three major operators all saw their stocks get hammered.
Driving the sell-off was news that Royal Caribbean was raising fresh capital, Cramer said. The company announced it was issuing $500 million worth of stock in a secondary offering and $500 million in senior convertible notes.
Royal Caribbean’s stock in turn fell 13.2% during Tuesday’s session, closing at $60.61. Norwegian Cruise Line dropped 8.24% to $16.59 per share while Carnival Corp.’s stock sank 7.76% to $14.03.
“I say: What did you expect? The cruise lines need money. If you bid their stocks up, as many younger, less-informed investors keep on doing, they’re bound to issue new equity. … They can’t afford to pass up that opportunity,” Cramer said.
However, for investors, Cramer emphasized that he believes the pullback in cruise line stocks Tuesday is not the right dip to buy. For starters, he said it is still not entirely clear when the companies will generate revenue by actually taking U.S. customers on voyages, even though the companies are well-run and appear to have solid bookings for 2021.
“Doesn’t matter how great Carnival or Royal Caribbean or Norwegian might be. I mean, the truth is that right now they’re not allowed to set sail because of the pandemic,” Cramer said. “Call me crazy, but I’m reluctant to recommend anything that’s legally barred from doing its business. Why would you want to own stock in a company that can’t operate?”
Although the Centers for Disease Control and Prevention ban on cruises expires at the end of this month, the companies have extended their service pauses further, Cramer said. “So, at the very earliest, domestic cruises won’t be back until December,” he explained. “If we’re still in the middle of a bad outbreak, I’d expect them to postpone again, regardless of what the government says.”
While the operators will have enhanced safety protocols when they do resume, Cramer said prospective investors need to keep an eye on the companies’ balance sheets and what they have said about future bookings.
And as of now, Royal Caribbean looks to be “the best of bunch, especially because of today’s capital raise,” Cramer said, while also pointing to great bookings for next year.
The host expressed concerns about Carnival’s cash burn, although he said the company has “the best exposure to the rest of the world that’s already sailing again.”
Norwegian has employed a disciplined approach to reducing costs, which is a plus, Cramer said. But on the other hand, he said the company has gone the longest of the trio without raising more capital. That means it could be vulnerable to the major sell-off that Royal Caribbean experienced Tuesday, should it decide to issue additional stock, according to Cramer.
He also issued a word of caution to young investors, especially, who see in the cruise lines an opportunity to buy beaten-up stocks at a discount, even as they have rallied from pandemic-era lows. “The cruise lines aren’t like a lot of other stocks you play with,” he said. “They need money, and they’re happy to take yours in the form of buying tickets or buying shares.”
“Until they can safely set sail, there’s just not much that they can do,” Cramer added. “On the other hand, there’s always something that can go wrong.”
