Are Discretionary Travel Plays Oversold?

At a given point in time, any company can be considered oversold or overbought, based on fundamentals. Often times, however, the macroeconomic story which provides the tide that raises all boats (or beaches them) is what drives near-term stock price movements in all stocks, across the board.

In the case of discretionary travel plays such as Carnival Corp. (NYSE:CCL), the rout which hammered stock markets to end 2018 certainly did not spare this cruise operator.

This macro narrative, combined with a poorly timed outlook for 2019 (which was negative in nature), precipitated a sharp drop in the company's share price to lows not seen since 2016. Many bulls bought the bottom, which has turned out to look like a favorable decision, given the more than 25% recovery from the company's most recent bottom.

That being said, I continue to believe that firms operating in the discretionary/travel sector to continue to see poor growth in the intermediate term due to slowing growth globally, aided by increasingly burdensome debt levels among middle class populations globally. 

Carnival's updated guidance on growth (downgrading 2019's expected growth rate of 4% to a measly 1%) is an indicator of what I believe to be only the beginning of a longer tail event.

Companies like Carnival can mitigate much of the negative effects of demand degradation by controlling costs, however the significant infrastructure of such companies requires significant capital outlay, making these firms ones I would stay away from in the near term, despite the "buy the dip" narrative of some bulls.

Invest wisely, my friends.