A few weeks ago, we had Ebola at the back of our mind and the decline in fuel costs at the front. Now Ebola's at the front of our mind. The decline in fuel costs? It's switched to be a negative for the stock market and a blunted positive for those who use a lot of oil. Plus, the decline's been so precipitous in oil that it's become a negative for the entire market, even as only about 12% of the S&P truly benefits from higher oil prices.
The change is radical. Look no further than cruise ships. Here's a principal beneficiary of lower fuel costs. I had recently profiled the group as being one with tremendous momentum. But now, you have to think that fear of someone coming down with Ebola on a ship could put a real dent on bookings. In fact, I think that cruise ships might be the most vulnerable of the travel and leisure cohort, maybe even more than airplanes, which themselves have a huge problem. It is simply disruptive to their business.
In fact, the group seems to lack any support, especially given that Carnival (CCL), which just reported a terrific quarter, has ALREADY gone from $41 to $35. Of course it is not just Carnival. Royal's (RCL) declined from $68 to $57, too. Or how about Norwegian Cruise Lines (NCLH), which just spent $3 billion to buy Prestige Cruises, an acquisition that boosted its stock about 12%? That move has now been repealed, again by Ebola.
So what can you do? To me, the group is still vulnerable. The overall market is still jittery and every single new Ebola case, like the health worker in Dallas, is going to cause this group to fall more. These stocks I believe would have been down about half of what they have fallen; more to go. Again, it is disruptive; that is the operative term.
Which brings me to a larger point about this market and stock judgment and my own role as someone trying to navigate these treacherous waters -- and they are treacherous. There are many people out there, including those on Twitter, who get a kick out of dredging up previous recommendations. They would easily say that these were terrible picks. In retrospect, they are. But investing is about recognizing that things have changed and changing with them. If you stick with the cruise lines you are, barring a takeover, going to take pain for some time now.
It's easy to extend this analysis to a host of industries. One case is a casino. How can you risk it? Unlike the cruise ships, Las Vegas Sands (LVS) and Wynn (WYNN) had already been doing badly. Again, natural shorts. The airlines? United (UAL) just reported a beautiful number and it rallied and reversed. Again, why? Ebola. I don't know if you want to think about where Priceline (PCLN) goes, or Expedia (EXPE), which require increasing travel volume to make the numbers.
This is one of those issues that simply cannot be put to rest until we know more about the illness and until it can either be contained or a vaccine be developed.
What's so difficult right now, though, is there are so few stocks that can allow you to benefit from the lower gasoline prices. Will restaurants be hurt? Kevin Miles, the terrific CEO of the fast-growing Zoe's Kitchen (ZOES), which is based in Dallas, couldn't deny that there could be a blip in sales in the town that has most of his stores. The second case of Ebola, the case involving the health worker, won't help that situation.
Of course, without a rally in oil, you know that group can't go anywhere either. And if oil does go up? There's more pain coming to the cruise ships, airlines and the rest of the travel & leisure industry.
So you can see the conundrum that faces so many stocks because of this Ebola scare.
It's just an untenable situation for many stocks. Again, treachery's the operative term. Do not try to be a hero. Even after last week's clobbering, I say please be careful. Ebola's scare is much worse than its reality. But sometimes, that's all you need to know.