FTSE 100 travel and tourism shares have gained quite a bit in the latest stock market recovery. The FTSE 100 index has risen by 10% over the past month, but cruise provider Carnival (LSE: CCL) and hotels and tourism services provider TUI (LSE: TUI) have done much better. The Carnival share price has risen by 24% and the TUI share price by 55%.
I have to admit I’m tempted to dabble in short-term trades in these stocks, but the long-term investor in me is far more cautious. The fact is, fundamentally nothing has changed to alter my perspective on these companies. Covid-19 might be coming under control but we haven’t seen the back of it yet. A second round of the pandemic is possible if we aren’t careful as lockdowns are lifted.
Both Carnival and TUI share prices are risky bets
Even if we are well on our way to putting the coronavirus episode behind us, I’m not sure if people are planning vacations in a hurry. There are two reasons for this. One, even as lockdowns ease, inessential travel is being discouraged. As a result it’s possibile that even after the world returns to normal, tourism and travel will be slow to take off.
Two, the economy is in doldrums. The worst is yet to show up in the numbers. Consumer confidence is already looking bad. Latest reports put it at its lowest since the financial crisis. Consumer confidence indicates consumer willingness to spend. If it’s low, it’s bad for spending and the economy and vice versa. Low consumer confidence is in line with these uncertain times of lost jobs and furloughed employees.
People are now more likely to save their resources than spend them. Discretionary spending or spending on inessential goods and services takes the biggest hit at times like these. The operations and share prices of both Carnival and TUI would be impacted in a recession in any case, but in this one even more so because of the lockdowns.
Not enough information yet
If I had enough information to make a reasonably good assessment of when their businesses might be back in the green, I’d consider buying these stocks. The trouble is, that I don’t. When spending will come back in full force remains a question mark. I expect that we will have a better handle on how fast the economy will recover only later in the year.
It’s possible that by the time that the recovery does take place, tourism-related companies would have suffered severe blows to their financials. I anticipate this to show up in the Carnival share price and the TUI share price as well. For a brave investor, investing in these shares may well work out favourably over time, but I’m more inclined towards safer stocks that also offer opportunity for capital appreciation.
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Manika Premsingh has no position in any of the shares 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.