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1 beaten down FTSE 250 stock that just made smart gains

Business development to success and FTSE 100 250 350 growth concept.
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After taking a bit of a hit in the past few days, the stock markets have returned to fine form now. Consider the FTSE 250 index, which returned to 23,000+ levels at yesterday’s close. As I write this article today, it looks very likely that the index will close even higher. This is good news considering that the index had fallen below the mark in late November, when updates about the Omicron virus were getting increasingly worrisome. 

One of the biggest gainers from today’s buoyant markets is the otherwise utterly beaten-down cruise operator Carnival Corporation (LSE: CCL). As I write, its share price is up by 4.6% from yesterday’s close. And this rise is second only to the media company Reach, which is up so far by 6.4%. I think there are two reasons why this just happened. 

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Buying the FTSE 250 stock on dip

The first has to do with the recent sharp recent decline in its share price. On November 26, the stock fell a huge 16%, as the FTSE 250 index itself dipped by a non-trivial 3.2%. This is hardly surprising. Travel has already been impacted by the appearance of the new virus, with new restrictions being put in place to stem its spread. And leisure travel is likely to be even more impacted, because it is not essential consumption, but a discretionary one. So, if it can be avoided, chances are that it probably will. Not to mention the fact that it could potentially face even bigger restrictions if the variant starts getting out of hand. So clearly, investors sold this particular stock far more in panic than the others. 

But as is often the case, when a stock price has corrected too much, it becomes an opportunity to buy. This is exactly what we at the Motley Fool keep saying. We always buy during stock market crashes! And even the mini-meltdown of late November has been seen as a reason for investors to step in and buy the Carnival Corporation stock. It has now recovered most of its value lost since 26 November, and is up by over 14% since. 

Return of investor bullishness

There is a more fundamental reason than just investor psychology behind it as well, though. There is a reason that stock markets have picked up in the last couple of days. I think that has to do with the fact that incoming company results continue to be healthy, the variant is still largely controlled, and might not even be as severe as some of the earlier variants, and there have been no other adverse developments to create market scares either. This bodes well for travel stocks, which could stand to gain big if the recovery continues unabated. 

What I’d do

However, that does not mean Carnival is a buy for me yet. In the past year, its share price has declined by 10%. And its financials are still badly impacted by the pandemic. It is on my watchlist, but I need more proof of its turnaround before considering buying the stock. 

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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