Here's your chance. You can jump on the airlines. Go feast on the cruise ships. Knock yourself out.
Or you can recognize that these stocks should never have been flying to begin with and their natural direction is down.
For days, we have been watching these stocks and marveling that there have been no sellers, even as none of the companies in these cohorts were saying anything that made you feel that they should be advancing.
There was some incredible confusion between surviving and thriving and a new group of amateur investors chose either to ignore the news that surrounded the companies or perhaps didn't even realize it mattered.
Until now.
Let's take the cruise ships. The cruise business right now is non-existent. Who buys stock in cruise lines that can't cruise.
Why amateurs, that's who.
What would have happened if they bothered to look at the news?
Let's take a look. What's going on at Carnival (CCL) Wednesday? The Cunard Line's Queen Mary 2 and Queen Victoria will not be sailing up to and including Nov. 1.
For Royal Caribbean (RCL) ? It's the closing of a deal for $1 billion in senior guaranteed notes due 2023. The cost of the money? It's 9.125%. That almost usury. And then there's $1.15 billion in 4.25% convertible notes due 2023. Talk about multiple guns to your head. That's almost a death sentence if they don't start cruising soon.
Norwegian (NCLH) ? We got the good news that it has $3.5 billion in liquidity and can survive without sailing for 18 months. Hmmmm, now that's a burn rate.
Don't look for government bailouts. They aren't U.S. companies.
Then there's the airlines. Here's the day's news flow.
Delta's (DAL) selling five-year unsecured notes that may yield 8%. The good news? The last time Delta came to the market, back in April, for $3.5 billion, the notes were secured by its lucrative slots in New York and Heathrow airports. That paper yields about 5.4%.
Delta believes that revenue will decline 90%, and that it expects passenger count will be below the pre-pandemic level through 2023.
United (UAL) ? J.P. Morgan (JPM) downgrades it along with JetBlue (JBLU) noting that "we do not believe the current pace of equity ascent can be potentially maintained for much longer" because of fear of dilutive equity raises and not so hot corporate demand among other reasons among multiple other reasons.
American (AAL) ? June cash burn is only $40 million a day. It had been $50 million prior. Now you are talking. I bet it would take all day to shove $40 million into a bonfire.
I think you are getting my point. For the cruise lines to stay alive, they really need to be able to cruise. For the airlines to stay viable, people have to stop thinking of them as Covid chambers. They need to have machines that test people for Covid, before they go on planes and I don't mean take temperatures, because Dr. Anthony Fauci, our top doctor, said that the World Health Organization was wrong to pronounce that you are unlikely to get Covid-19 from someone who is asymptomatic. Without that surety, I don't know if you are going to bring back the travelers you need, especially because if all companies that compete with each other keep on Zooming (ZM) and don't go in person then corporate travel could dry up almost completely.
Why do I point all of this out? Because these two groups have been about the hottest stocks in the entire market until Tuesday. All of the information I mentioned is pretty much par for the course from these groups, yet there has been absolutely no recognition of any of this during their remarkable ascent. Carnival's stock just cruised from $8 to $24. Norwegian's stock jumped from $9 to $27. Royal? $32 to $75. These are all within a matter of days.
Same with the airlines: Delta? It just flew from $19 to $36. American? $11 to $20. United? $26 to $48.
All of these companies were foolish not to do equity offerings, because their stocks had been bid up by amateurs who knew only that stocks go up after you buy them. What fools these buyers are, and yet the airlines must have thought that there was institutional money behind the runs.
It was anything but.
Now the institutions and the amateurs are tripping all over each other to get out. Don't look for the research firms to help. Many had thought these stocks should have been much lower anyway, especially American, with that $1 target from Evercore.
Were the moves chimerical? No, they happened. Somebody made money. But the reality is there are still plenty of amateur investors in these stocks. For some it might be their first taste of losses.
Somehow I think it won't be the last.
(JPMorgan Chase is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock? Learn more now.)
