While some may consider these consumer discretionaries as “epicenter stocks,” it’s safe to say that there’s a much more specific focus on travel stocks as a whole of late. A bucket of cold water was thrown onto travel and leisure stocks during the first quarter of the year. Everything from airline stocks to cruise stocks, hotels, and casinos; all were hit hard by the restrictions brought by the coronavirus pandemic. Obviously, this extended into all areas of this space including restaurants, night clubs, and, of course, car rental stocks.
Year-to-date, Delta Air Lines Inc (NYSE: DAL) is still down 30%, American Airlines Group Inc (NASDAQ: AAL) is down 49%, and United Airlines Holdings Inc (NASDAQ: UAL) is down 51%. While these might’ve recovered since March, there’s still quite a long way to go.
Will Vaccine Hopes Outweigh Coronavirus Concerns?
That also goes for many of the cruise stocks, which were dealt another big blow by the CDC recently, which recently raised the cruise ship travel risk to a level 4, the agency’s highest risk level possible for contracting COVID-19.
This may effect not just cruise lines, but also the economies heavily focused on the business that cruises bring in. This isn’t just the destinations in places like the Caribbean, but also mainland U.S. ports including cities in Florida, Texas, and California. In August, for example, experts estimated that the impact of stopping cruises resulted in a $23-billion loss to Florida’s economy alone.
While airlines are still flying certain routes, a number of major cruise lines have canceled many trips until next year. These include Carnival Corp. (NYSE: CCL), Royal Caribbean Cruises Ltd (NYSE: RCL), and Norwegian Cruise Line Holdings Ltd (NYSE: NCLH). Norwegian, in particular recently extended its Peace of Mind policy to include existing and new reservations made by December 31, 2020, which allows booked guests to cancel their cruise up to 15-days in advance of embarkation. The policy also entails a full refund in the form of a future cruise credit.
Still, with the CDC’s latest move, cruise stocks might be floating in uncharted waters at the moment. For this reason, those looking for exposure to travel might want to take a brief refresher in the basics of day trading right now. This seems to have paid off better as trends in cruise and airline names have been short-lived.
Is It Time To Find Travel Stocks To Buy Right Now?
Herein lies the play on epicenter stocks. According to Fundstrat’s Tom Lee, epicenter stocks are “high-quality companies” in sectors that were hit the hardest by the COVID-19 pandemic. Lee has also explained that these could have a very good risk/reward in the face of a potential vaccine and economic reopening.
This idea of travel stocks in reference to airlines and cruise ships being “oversold” has driven many retail traders to seek out stocks in the travel industry. Among the most popular stocks on Robinhood, it appears that traders are still flocking to airline stocks right now; not so much cruises. Delta, American, United, JetBlue, Southwest, and Spirit are all in the list of the 100 most popular stocks on Robinhood’s app right now.
Before jumping headfirst into investing in airline stocks, it’s important to weigh the risk/reward on a long-term timeline. Many of these companies are burning cash left and right. United, for example, recently announced filed a secondary offering for up to 25.3 million shares. Furthermore, the uncertainty of what the market will yield even with a vaccine is still a big concern for these companies. Many airlines are once again feeling the strain of lower holiday season sales and more cancelations.
In a release last week, United said that it “continues to see a significant impact in demand for air travel. In the last week, ending November 18, 2020, there has been a deceleration in system bookings and an uptick in cancellations as a result of the recent spike in COVID-19 cases. The Company does not currently expect the recovery from COVID-19 to follow a linear path and, as such, the Company’s actual flown capacity may differ materially from its currently scheduled capacity.”
United also said that its scheduled capacity for this quarter is expected to decline “at least 55% year-over-year.” The company’s current, daily cash burn is expected to be between $15 million and $20 million in addition to $10 million of average debt principal payments and severance per day.
This isn’t unique to United. Many airlines are also following suit, raising money in attempts to stay afloat during the extended pandemic. But is this to say that all travel stocks are still just going to tread water for day traders to take advantage of?
Two Travel Stocks Trading Higher In 2020
Believe it or not, there are travel stocks that not only recovered from the pandemic meltdown in March but are actually positive on the year. Most notably, Expedia Group Inc. (NASDAQ: EXPE) and Booking Holdings Inc. (NASDAQ: BKNG) have gone positive on the year in November, each making new annual highs. On November 9, both BKNG and EXPE reached fresh highs of $2,128.02 and $130.57 respectively.
While revenues were decimated this year for both companies, each were quick to raise billions, early on to weather the storm. In addition, the duo took up considerable cost-cutting strategies including trimming their workforces. While it would seem that airline stocks and cruise stocks have tripped up over the last few months, travel service stocks like these have flourished.
Will one eventually outperform the other? So far, the chart trends look the same. However, Booking, which owns Priceline and Kayak, has a larger footprint in Europe. As lockdowns loosened, Booking’s business could continue to experience a bit more vibrance. Expedia, on the other hand, owns Vrbo and Orbitz with a larger focus on U.S. markets. Will the recent uptick in virus cases signal some troubling waters for EXPE stock before the end of the year?
With the upcoming retail holidays of Black Friday and Cyber Monday, there could be one last push to grab cash before 2021 as well. Priceline, for example, recently launched a Black Friday sales event putting a focus on its VIP Loyalty Program. The sale features more than 50 different deals and more than $5 million in potential travel savings. Will this help boost year-end numbers and fourth quarter performance?
In any event, the point is that while retail traders are trying to get in on stocks like airlines and cruise ships, burning millions daily, the real winners have been the travel service providers themselves, so far.
Neither the author of this post nor Pennystocks.com have a position or financial relationship with any of the stocks mentioned above.
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