Travel stocks are heading north.
Some cruise and hotel names have rebounded by triple-digit percentages from their 52-week lows as economies kick-start their post-Covid reopening plans. They include:
- Carnival, up 183%
- Royal Caribbean, up 161%
- Norwegian Cruise Line, up 158%
- Marriott International, up 46%
- Hilton Worldwide, up 34%
Investors should approach this rebound in travel with caution, Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Monday on CNBC's "Trading Nation."
"The trade that is most overbought and most ridiculously overvalued at this point is the cruise ship trade," Schlossberg said.
Carnival, Royal Caribbean and Norwegian Cruise are all still down roughly 50% year to date. Lately, some have been trying to "revamp demand" by offering exceedingly low rates, but that strategy may be flawed, Schlossberg said.
"Carnival, for example, is pricing rooms as low as $28 a night per passenger when their actual fixed costs are close to $100," he said. "The hope is that the passengers will then be able to make up revenue by [buying] on-board amenities. But if you think about this, the people who are going to take advantage of this are going to be young families, the ones that have the least amount of disposable income to spend, because those who are most vulnerable to Covid are the older travelers and they're going to be much less likely to take advantage of these offers."
Add to that the wild card of possible spikes in coronavirus cases in states that are reopening, and Schlossberg's outlook for the cruise liners gets even more grim.
"We're starting to see a rise in Covid cases, especially in places like Florida, up to about ... 1,000 per day at this point," he said. "By the time they open up the cruise ship offers, which will be August, if we're running at 2[,000]-3,000 Covid infections per day in Florida, I think you're going to see a much greater dampening of enthusiasm towards that trade. So, I am not at all a buyer of this rebound in travel."
Ari Wald, senior technical analyst at Oppenheimer, looked to the other side of the travel trade for opportunity.
"These stocks have become overbought, and I think the tactical idea is to probably find something that has lagged of late," Wald said in the same "Trading Nation" interview. "So, this is really just to say that it's getting late to buy the travel stocks."
Even so, Wald said he wouldn't bet against any of the above names until they near their 200-day moving averages, "and many of them, including the cruise lines, aren't there just yet."
"You might be able to squeeze a little bit more out of it," Wald said of the trade. "One name from that list that has already reached its 200-day average is Marriott International, the hotel chain."
"The stock is right below resistance at $119. That does mark the 200-day," Wald said, adding that he would recommend buying the stock below that level.
"Of course, a rally above it would mark an incremental change in the stock's trend," he said.
Marriott shares closed up nearly 5% at $113.14 on Monday. The stock fell about 3% in Tuesday's premarket trading.