Buffett Can Now Buy All Three Major Cruise Lines and Can Still Afford for a Full Takeover of FedEx

Warren Buffett...Berkshire Hathaway Chairman and CEO Warren Buffett  reacts at the newspaper throwing competition while touring the exhibition floor prior to the annual shareholders meeting on Saturday, May 3, 2014

(Image source: Telegraph)

Market trepidation in recent weeks have caused panic-like behavior

Stocks: CCL, RCL, NCLH, BRK.B, FDX

Just before mid-February, the market volatility has been relatively tamed and market indices were hitting all-time highs in succeeding days with backings of solid economic data. Now, the market has shown its much more moody side and has since put to submission any investor who have sold at a loss amidst the trepidation in the past couple of weeks. The recent market correction provides a good opportunity for investors who have plentiful of buying power.

“I like to buy stocks. I don’t wish ill on anyone else, but if they want to sell them to me cheaper, I prefer it,” Warren Buffett (CNBC)

As the death toll and cases related to the novel coronavirus has continuously climbed and medical professionals working hard to develop the vaccine and eventually the cure to the deadly lung virus, certain industries have experienced severe blow in their market value.

Stock prices of cruise ships, in particular, have been trashed and now have dropped a little more than half of their value in the past two weeks.

The largest leisure cruise line operator, Carnival Corporation (CCL), with 105 ships has been widely exposed to the coronavirus outbreak brought by its large fleet. While Royal Caribbean (RCL) and Norwegian Cruise Line Holdings (NCLH) were no exceptions to the market price deterioration. Royal Caribbean operated 61 cruise ships while Norwegian had 26 ships per latest record.

Losing roughly $36 billion altogether in market value may not yet signal any bottom for the cruise line operators as the United States government is now considering ways to discourage U.S. travelers from taking cruises.

“Singling out the travel and tourism industry, and cruise lines specifically, will have significant detrimental impacts – some possibly irreversible – on the national and local economies,” Cruise Lines International Association (Reuters)

Nonetheless, Carnival Corporation offered the best balance sheet among the group with 0.45 debt-equity ratio followed by Royal Caribbean with 0.88. Now at an all-time high of 7.4% trailing dividend yield at a 50% payout ratio, Carnival may just simply be the best house in a bad neighborhood.

With the coronavirus vaccine expected to be a year away and its containment remains up in the air, an investor must be sure he will be able to withstand the tumult should one dive in and pick up any of these badly beaten cruise line operators stock for the long-term.

With $120 billion in cash sitting idly, Buffett (BRK.B) can now buy all three major cruise lines and can still afford for a full takeover of FedEx (FDX) and $50+ billion more in change but the question remains: why now and why would he?

Disclosure: Long BRK.B

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