The past three months have thrown up an awful lot for the FTSE 100 to handle. If we back-track to three months ago, we were gearing up for a general election, with the potential of a new Prime Minister and also a change of track for Brexit on the cards.
As we made our way through January, strong gains and cautious optimism were in the air. The FTSE 100 and other major stock markets around the world posted strong gains (US stock markets hit record highs).
And in the third of the three months we’re looking at, there was a sharp sell-off as the world braced for the impact of the coronavirus and the disruption it could cause. From February, this has dragged most stocks into negative territory for the quarter as a whole. But which are the two very worst performers, and is it worth buying them on the cheap?
TUI AG (LSE: TUI) is down 45% over the past three months. The hit for the firm is understandable, as other FTSE 100 airline firms such as EasyJet and the parent company of British Airways have also seen sharp losses in this period. Indeed, the fall in market capitalisation (share price x number of shares) for TUI means the business will drop out of the FTSE 100 shortly.
The main driver behind TUI losing ground is the coronavirus, with many deciding to cut back on travel abroad. This may be forced via business restrictions, or voluntary, with pleasure seekers deciding to postpone trips. Not only this, but the firm is also struggling with dealing with holidays already booked. A hotel in Tenerife that the business uses extensively for package holidays went into lock-down last week for coronavirus quarantine.
For me, things are likely to get worse before they get better for TUI, so I will be staying well away from investing currently with all the uncertainty surrounding the virus still prevalent.
Carnival (LSE: CCL) is a cruise line operator, the biggest in the world. The global reach and size of the firm has not been helpful recently, again due to the coronavirus concerns. As I write I am not aware of any outbreaks of the virus on Carnival ships, but other ships have had to be quarantined due to outbreaks.
Only two days ago, Carnival announced it would be offering $200 worth of free drinks to passengers who did not cancel their reservations for upcoming cruises, highlighting to me how much the business is struggling to bring in revenue from bookings.
While this is a similar case to TUI (the Carnival share price is down 37% in three months), I am more positive on buying Carnival in March. The cruise business has very high barriers to entry. And the existing position the firm has in the marketplace makes it most robust to see out virus problems compared to competitors. In the meantime, investors can be rewarded by picking up a high 7.75% dividend yield, and be happy in the knowledge of buying at a cheap trailing P/E ratio of just 4.59.
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Jonathan Smith does not own shares in any firm mentioned. The Motley Fool UK has recommended Carnival. 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.