The last few years have created a number of opportunities for investors to profit from headline risk. Is Carnival's shipwreck one of them?
A version of this article originally appeared on our US site, Fool.com.
The wreck of Carnival's (NYSE: CCL.US) Costa Concordia cruise ship off the Italian coast raises a number of questions.
The most perplexing of these -- not to mention comedic, if the accident weren't so tragic -- is what in the world its captain was thinking as he hastened to abandon ship while thousands of passengers remained on board. According to his account, the whole thing happened rather by accident: "I tripped and ended up in one of the lifeboats. That's why I was in there."
Talk about epic fail.
For savvy investors, however, the question is whether the headline risk from the accident has created a buying opportunity akin to BP (NYSE: BP.US) following the Deepwater Horizon catastrophe or News Corp. (NASDAQ: NWS.US) following the revelation of its phone-hacking scandal, as Carnival's stock price took a deep dive shortly after the news of the accident broke.
To cut to the chase, I don't think it has.
The decline in its stock price isn't anywhere near the declines suffered by the companies associated with either of these other events. In the months after the oil spill, the stock prices of BP, Transocean (NYSE: RIG.US) -- the rig's owner and operator -- and Halliburton (NYSE: HAL.US) -- an oil-field-services provider working on the platform -- fell by 55%, 54% and 37%, respectively. And in the months following the phone-hacking scandal, News Corp.'s stock fell by 17%, going from $16.97 down to $14.01.
| Company | Pre-headline risk stock price | Post-headline risk stock price | Decline |
|---|
| BP | $60.48 | $27.02 | 55% |
| Transocean | $92.03 | $42.58 | 54% |
| Halliburton | $33.31 | $21.15 | 37% |
| News Corp. | $16.97 | $14.01 | 17% |
| Carnival | $34.28 | $29.60 | 14% |
Source: Yahoo! Finance.
On the other hand, as you can see in the table above, Carnival's stock price fell by only 14%, and it's now trading at a mere 8% below the pre-wreck price of $34.28.
For the enterprising investor, in turn, these numbers suggest that the meagre opportunity to profit from this event has largely evaporated -- much like the ship captain's hopes for finding gainful employment in the future.
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