Carnival Corporation Cash Secured Put – June 24, 2022

The Arena

The S&P has now posted back to back sessions into the green but I don’t know if it can last. As a best case scenario I would expect some rangebound action as investors digest how pitiful (or bountiful) the new economic landscape actually looks. From my angle it doesn’t look great in the short term but it also doesn’t look as bad as the doom and gloom that seems to be in every video or post I see right now.

I mentioned this in a previous article but it does seem as if most industries are making enough money, even by today’s standard, to justify current equity pricing. Does that mean or beloved Coca-cola won’t fall? No, they and others probably will but it (and I say this with a sigh of relief) also doesn’t suggest any depression level economic crisis either. Of course, I bet some shmuck just like me uttered something all to similar in 1929, and we know how that worked out. Just saying…

Today’s investment consideration is an absolute mess, which I’m pretty sure is why I’m looking at it in the first place. If you had asked me in 2019 what I thought about the cruise industry as an investment, I’d have kindly offered you a hard pass. Now, fast forward through one of the craziest 2-3 year periods in history and I’m feeling surprisingly different. However, plenty of RISK accompanies this one so don’t go diving headfirst into the kiddie pool.

The Coach

Not much stands between Carnival Corporation’s current stock price and what we in the business call, “the end of the line”. Which isn’t really business specific vernacular, its just what it is in this case. The travel industry has been gutted since the covid lockdowns began more than 2 years ago and it looks as if Carnival specifially has been hung up in the walk-in freezer to continue bleeding out. I do realize that’s graphic but if you’re looking at the same chart I am I think you’ll agree.

Currently, Carnival Corporation is attempting a comeback of sorts but it has more hurdles in front of it than a 300 meter hurdler, maybe even a 600 meter hurdler and I’m pretty sure that’s not even a thing. Carnival’s debt load is snowballing and inflation is driving consumers ever further away from discretionary purchases. Top that with higher cruise prices as Carnival has to pass on additional costs and we have ourselves what we in the business call, and “economic tsunami”. Again, not really a business term, just seemed fitting.

Now, why am I chattering endlessly about this disaster of a stock? If (emphasis on if, a GARGANTUAN IF) Carnival Corporation can somehow navigate its way through the next 2-5 years I think we’ll watch this stock soar. That said, its not like this ships leaving the port anytime soon so I’m considering a bullish put spread well below the current share price to get an even better discount on this former travel giant.

Here is a snippet of the fundamental breakdown surrounding Carnival from CNN. Additionally, here’s what the analyst’s are suggesting from Wallstreetzen.com: CARNIVAL CORP Stock Forecast, Predictions & Price Target.

Carnival Corporation Stock Price Chart 6-24-22

The Attack

Carnival Corporation is trading for less than its book value as of today and that isn’t something that happens often. Obviously for good reason as it looks like Carnival is heading into uncharted water during monsoon season. Nevertheless, I would not be surprised to read about them going bankrupt in the near future. Consider that a warning.

All that having been said, I hope its clear this is as RISKY an investment as they come. With that, I’ll be considering an out of the money naked put to keep a watchful eye on Carnival in the weeks ahead. Which essentially means, this stock is an excellent candidate to become bearish on with a bear call spread. Can Carnival ever recover or were global lockdowns the final straw? Time will surely tell…