Swine Flu: Why I Would Avoid Travel Related Stocks

As the world is freaking out about a possible swine flu pandemic, travel related stocks are being sold off. The damage that swine flu will inflict on airlines and cruise companies is likely (much) more psychological than tangible, but I would still avoid buying any travel-related stocks until this swine flu hype (hopefully) blows over.

For example, Carnival Cruise Lines (CCL) shares are down 10% as of 10 AM Monday, and its main competitor, Royal Carribean (RCL) is down 15%. Airlines are taking a beating too - Southwest (LUV) is down about 9%, while US Air (LCC), which was also downgraded by UBS this (Monday) morning, is trading down 15%. Here is a little article on MarketWatch showing the price declines of airline stocks.

Actual bookings for things like cruises and flights may decline if this fear doesn't pass over quickly. But the market will continue to sell these stocks as long as the swine flu scare is making news. Eventually, there will be a buying opportunity after the fear subsides, but I would not be buying any of these stocks today.

Comments

[ETFdesk.com:]

I agree with you on this. Want to stay away from airlines, etc. until this shakes out a bit more. It sounds as though it will be a "controlled" event but the risk of a full scale pandemic is there. Looking to buy FAA once the "fear" subsides for a nice buying opportunity. Always hard to calculate a fear index but a good proxy might be tracking searches for "flu" or # of news stories per day...

Apr 27 02:21 PM

[Mad Hedge F...:]

They are the obvious target. A few bad tacos in Mexico, and all of a sudden the world has gone apoplectic about another Spanish flu epidemic, when 5% of the global population died, or 50 million. The State Department banned non essential travel to Mexico, cratering that economy, while the EC recommended against travel to the US. With visions of SARS in their minds, which sent markets in Asia tumbling a few years ago, traders sold off the Mexican Bolsa by 4% and the Hang Seng by 2.7%, American Airlines (AA) 10%, Carnival (CCL) 10%, and Royal Caribbean (RCL) 15%. The Mexican peso got slammed in the FX markets, and commodities tanked across the board. Tamiflu makers Gilead Sciences (GILD) and GlaxoSmithKline (GSK), as well as drugstores like Rite Aid (RAD) got a nice bump. Epidemiologists say the world is long overdue for a reoccurrence of a severe pandemic, with the explosion of international trade and an exponential growth in populations. But it is highly unlikely this is the Big One. Mexico’s public health infrastructure is primitive at best, and there is no biological evidence that this is anything remotely like the H5 N1 virus that caused the 1918 epidemic. With 25 million living in Mexico City in close quarters on a former swamp and a dubious water supply, this could be anything, even just the tail end of last year’s flu season. Almost all of these viruses originate in China, where they make the leap from pigs to humans, and then globally. But, still, try and buy a face mask at Longs Drug Store today.

Apr 27 04:34 PM

[XRTrader:]

Ridiculous. Do yourselves a favor and use this dip to pick up solid travel related companies on the cheap. As noted above, the epidemiologic characteristics of this outbreak do not point to a pandemic.

Apr 27 07:55 PM