Leisure seekers: the case for boarding now?

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Personal Investing

08 October 2020

While the short-term outlook for leisure stocks remains challenging, potential developments could help propel them forward, according to our Global Equity Strategist.

As we head for what Prime Minister Boris Johnson describes as ‘a very tough winter,’ the thought of cruising around the warm, blue waters of the Mediterranean seems but a dim-and-distant memory. And yet stock markets don’t look back nostalgically at anything. They look forward.

As potential investors we might do well to follow in their footsteps. Instead of focusing on what’s happening today, we may do better to focus on what could happen tomorrow and beyond.

Early in the pandemic, for example, it became clear that those companies most directly affected by the lockdown would see their share prices hit hardest. But, if and when consumer behaviour returns to normal, we would typically expect the share prices of these types of companies to recover.

Take groups involved in leisure activities, such as cruise liners and airlines. We believe the near-term outlook remains challenging – the weather is becoming cooler, and the virus is spreading in much of Europe. But, over the coming few months, we expect generally positive news on how to overcome the pandemic, especially in terms of a vaccine, alongside more rapid testing.

These types of potential developments might well be the factors in helping the share prices of leisure stocks to recover. It’s important to state that we have no specific insight into the timelines for any of these would-be developments. That said, we take some comfort from the fact that very little good news is incorporated into the share prices of leisure stocks at the time of writing.

Cruising after a bruising few months

There have been other encouraging signs too. In China, consumer travel is back to pre-crisis levels, albeit only domestically so far. Closer to home, the strong response to the UK’s ‘eat out to help out’ scheme implies a healthy appetite for leisure activities.

Even some cruise liners are now operating again. In Germany, the MSC Grandiosa has completed multiple cruises with no infections on board so far, although some customers were excluded from embarking, while Costa Cruises has restarted its cruises in Italy.

In the US, a decision by The Centers for Disease Control and Prevention is expected this month and cruises could recommence there before year-end if approval is granted.

Moreover, industry figures suggest that cruise bookings for 2021 have been within historical ranges despite the lack of any marketing.

60% of cruise bookings between May and July this year were reportedly new purchases rather than rescheduled cancellations, and recent cruise passengers have, on the whole, left positive feedback.

Turbulence remains

That’s not to say there are no risks to investing in these types of leisure stocks. A greater-than-expected second wave could further delay the reopening of the global economy and outbreaks on cruises could easily provide a set-back to these types of stocks. We should also be aware that leisure relies on the income consumers have in their pockets, so could be impacted if unemployment continues to rise.

Furthermore, more elderly customers may prefer to shield themselves against the virus for longer, meaning overall demand for leisure activities is curtailed.

We believe the short-term outlook for the travel and leisure industry may well remain patchy, driven by the ebb and flow between virus fears and vaccine hopes. Over time, however, we expect the rising tide of normality to buoy the sector.

Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.

Forward-looking statements are, by their nature, subject to significant risks and uncertainties and are based on internal forecasts and assumptions and should not be relied upon.

Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.