Will the 3 biggest losers of the S&P 500 in 2020 ever recover?
The coronavirus bear market was brutal for stocks at the start of the year, but the S&P 500 (SNPINDEX: ^ GSPC) managed to recover much of his lost ground in the second quarter. With the help of some tech and biotech companies, the S&P only fell 4% midway through 2020.
However, there have been many companies that have suffered huge consequences from the COVID-19 pandemic that have not bounced back. Let’s take a closer look at the three worst performing S&P stocks to date in 2020 to see if they have a chance of recovering.
Norwegian Cruise Line Holdings, down 73%, and Carnival, down 69%
The cruise ship industry has stalled due to the pandemic, and major stocks in the industry have suffered the consequences. Norwegian Cruise Line Holdings (NYSE: NCLH) and Carnival (NYSE: CCL) were the two worst performance of the year for the S&P 500 to date, and Royal Caribbean cruises (NYSE: RCL) barely missed making a clean sweep, finishing No. 4 just a few percentage points out of the top three.
The main problem for the Norwegian and the Carnival is that their ships have not been able to operate in the aftermath of the coronavirus crisis. Even though airlines and other travel options have started to open up, cruise ships remain subject to a US sailing ban order, and many other countries also do not allow cruises to the United States. their territorial waters. Having already lost key moments of winter and spring, neither Norwegian nor Carnival expect significant summer activity, and even some fall routes have already fallen by the wayside.
The problem for investors in cruise ship stocks is that companies have all had to take drastic measures in order to raise the capital necessary to manage the fixed costs during their respective closings. Through a combination of convertible debt and equity, Norwegian, Carnival and Royal Caribbean have all had to dilute their previous shareholders. What’s more, even the outright debt that companies have taken on comes with high interest rates that will put pressure on profits for years to come. At this point, it is difficult to see how cruise stocks will return to their previous levels, even if a long-term solution to COVID-19 arrives in the near future.
TechnipFMC, down 66%
the energy industry also took a big hit from COVID-19. Lockdowns in many areas have kept workers from moving, creating a massive supply glut that has proved disastrous for crude oil prices. In short, oil futures turned negative which posed its own challenges as investors faced a situation that had never happened before.
Low oil prices aren’t just bad for exploration and production companies. They are also bad for the support companies that help these E&P players. TechnipFMC (NYSE: FTI) is one of the largest engineers and manufacturing contractors serving the oil and gas industry, and it needs healthy energy markets to drive demand for its services. This request was sorely absent for TechnipFMC These last months. Plus, there’s little reason to expect it to come back quickly – even though oil prices have started to climb back to $ 40 a barrel. Unless crude can produce a sustainable bull market, tough times could continue for TechnipFMC.
Expect more pressure
It’s possible that the S&P 500 will continue to regain lost ground, especially if its stronger components carry most of the weight. Unfortunately, investors cannot expect too much from TechnipFMC or cruise ship stocks. Even if they recoup some of their losses, they are nonetheless likely to see continued pressures on their core business.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.