Trader says don’t bet on a long-term surge

Investors are jumping back on board Carnival.

The stock led the S&P 500 on Friday after rallying 11%. CEO Arnold Donald said Friday that nearly 60% of 2021 bookings during the first three weeks of June were new reservations as opposed to reschedulings of a canceled cruise.

After falling 70% from January highs, it’s not all blue skies ahead for Carnival, Newton Advisors founder Mark Newton said Friday on CNBC’s “Trading Nation.”

“Carnival still looks very much like a gamble given the uncertainty about the vaccine,” he said.

Carnival has been hit hard by coronavirus lockdowns, canceled cruises and fears of weak consumer demand. Newton noted that the stock is down more than 36% since June 8, a near-term top, while the RSP equal-weight S&P 500 ETF has fallen 10%.

Still, Newton said Carnival could continue to run higher, if only over the near term.

“With the price at $16, you can make a good case for good risk-reward given it’s a decent trend line and maybe the worst is behind us and that the market is forward looking, so potentially a bounce in the next four to six weeks,” he said.

However, it could still struggle over the longer term, he warned.

“The stock is down over 75% just in 2½ years — monthly momentum is still very negative. Everybody I know says it’s going to be tough to plan a cruise in the weeks and the months to come, so it’s just a lot of uncertainty to really want to own the stock long term until you get some more answers,” said Newton.

Chad Morganlander, portfolio manager at Washington Crossing Advisors, is steering clear of the cruise lines altogether.

“When it comes to these type of companies, they have a huge amount of debt on their balance sheet, so they’re lower quality companies,” Morganlander said during the same “Trading Nation” segment.

Instead, he’s favoring stocks that fulfill three criteria.

“At this point in the market cycle, you want to look at the three rules of engagement. We’ll pick companies that are consistently growing, consistently profitable, high quality companies that don’t have a lot of debt on their balance sheet,” he said.

Cruise lines do not fit the bill, he said.


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