The travel trade is gaining ground.
Major cruise line, hotel and airline stocks were some of the top performers in the S&P 500 on Tuesday, the latest uptick in a group still clawing its way back toward its pre-pandemic levels.
Norwegian Cruise Line Holdings, Royal Caribbean, Carnival, MGM Resorts, Caesars Entertainment, United Airlines, Delta and American Airlines are among the index’s biggest gainers this week.
Though cruise lines still have significant debt loads, two of their stocks could be worth considering for a trade, Danielle Shay, director of options at Simpler Trading, said Tuesday on CNBC’s “Trading Nation.”
“We are going to see cruise liners starting to sail again,” Shay said. “The cruise liners are still beat down, which means that you still have some upside.”
Royal Caribbean, Carnival and Norwegian Cruise are respectively 33%, 44% and 47% below their pre-Covid highs from January 2020.
“I think you have about $30-$40 of upside in both Norwegian and Royal Caribbean, and with these in particular, the at-the-money call options are cheap,” Shay said.
She suggested looking out to the January 2022 or January 2023 at-the-money LEAP call options on either stock. LEAP, or Long-Term Equity Anticipation Securities, options can be used by longer-term traders as a replacement for buying shares of a stock.
“You have a cheap option there, and if you trade that looking for the stock to rise to pre-pandemic levels, you have quite a bit of upside there,” Shay said.
With U.S. consumers flush with savings — $3 trillion in excess versus a year ago — this resurgence won’t die down anytime soon, Steve Chiavarone of Federated Hermes said in the same “Trading Nation” interview.
“We’ve been locked in our homes staring at screens for the better part of a year, so, the answer in terms of what we like on this theme is all of the above — it’s airlines, it’s casinos, it’s cruise liners, it’s restaurants. It’s really the whole group of them,” said Chiavarone, a portfolio manager, equity strategist and vice president at his firm.
Active management is key to success here, however, Chiavarone said.
“Because you are facing price pressures and you do have capacity constraints in terms of labor, you really want to go in with thoughtful stock selection here,” he said. “Buy companies with good balance sheets, the ability to have efficiencies, pricing power, so that they can benefit in the rising price environment and gain share.”
Disclosure: Shay owns shares of Norwegian and Carnival.