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It Is Not Yet The Time To Buy Carnival Stock

Mar. 05, 2020 5:57 PM ETCarnival Corporation & plc (CCL)271 Comments
Sven Carlin profile picture
Sven Carlin


  • The coronavirus is an unfortunate situation. However, when it comes to Carnival, there is something even more important.
  • Before buying any stocks, it is crucial to understand the nature of the stock. Carnival is a slow growth cyclical stock.
  • Slow growers are not that great investments and the best time to buy cyclicals is when the numbers look terrible but will improve, not when those are great.

Carnival (NYSE:CCL) stock has been severely hit due to the coronavirus. The consequences will be felt for a long time and can't be measured now. However, what we can do is to categorize the stock in order to know when is the best time to buy CCL.

I've recently discussed how Peter Lynch divided stocks into six categories which helped him a lot in reaching 28% yearly returns managing Fidelity Magellan.

The six categories are:

Carnival stock categorization

CCL stock has seen its revenue grow 33% over the past decade (line 1 in the below figure) which puts it into the slow growth category. However, from an investing perspective, perhaps the best categorization would be a cyclical one. Operating margins (line 2) are volatile considering the last recession period was around 2013, with the government shut down in the US and debt crisis in Europe. Net income in 2013 was just $1 billion, while, now, it is $3 billion and dividends (line 3) doubled since. So, we could assume that earnings will suffer significantly in a recession and the current coronavirus situation certainly doesn't help.

Source: Carnival Stock Morningstar

Now that we have categorized CCL, let's see how to invest in it.

How and when to buy Carnival Stock

Sticking to Peter Lynch here is how he describes a cyclical stock and investing tactics related to them:

  1. Flourishes when the economy becomes healthy again
  2. Suffers when there is no economic growth
  3. 50% drops are normal if you buy at the wrong part of the cycle
  4. Can involve waiting for years before seeing another upswing (Ford down since 2013)
  5. Can be large and well-known companies that can part the unsuspecting stock picker from their money
  6. Timing is everything - watch for inventories and for new market entrants as signals
  7. Usually declines

This article was written by

Sven Carlin profile picture
Passionate about value investing! Education: PhD - A Real Value Risk Estimation Model for an Emerging Market Experience: Investment manager at Let it grow investments, Netherlands Assistant professor at the University of applied sciences Amsterdam, Netherlands Data researcher at Bloomberg, London UK

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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