De S&P 500 index (SNPINDEX: ^ SPX) completed the trade with 9 points, a gain of about 0.27%, on August 10th. But even though the index itself was relatively flat, travel, hospitality and casino stocks were absolutely booming today.
Leading of the bid was higher MGM Resorts International (NYSE: MGM), up 13.8% on news that a major investor took a $ 1 billion stake in the casino and resort operator. Airlines also share higher, with United Airlines (NASDAQ: UAL) shares are rising the highest, up 9.4% after TSA’s latest airport screening counts over the weekend.
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Cruise line shares also rose higher today, too Royal Caribbean (NYSE: RCL) shares leading the flotilla: It was up 10% after reporting earnings that seems to give investors hope for the entire sector.
Shares of troubled oil giant Occidental Petroleum (NYSE: OXY) also climbed today, up 6.7%, ahead of its second-quarter earnings report after the market closed.
Media giant makes $ 1 billion bet on casino industry
Media giant IAC / interactive (NASDAQ: IAC) just bought a 12% stake in MGM Resorts, sending MGM shares sharply up on the news. The CEO and Chairman of IAC wrote a joint letter announcing the investment, outlining MGM’s brand, physical presence and online operations.
Investors apparently saw the IAC investment as a positive for peers Wynn Resorts (NASDAQ: WYNN) en Las Vegas Sands (NYSE: LVS), increased their shares by 10% and 7.5% respectively.
Purchases, positive travel news send cruise line and airline shares higher
The Transportation Security Administration gave investors reason to flock in airline shares today, reporting that more than 800,000 travelers went through screening checkpoints on Sunday. This is the most travelers in one day since March 17, and a massive jump from the low of 87,534 on April 14. Total travelers from Friday through Sunday were just under 2.28 million.
Investors quickly responded to the news, sending shares of each airline in the S&P 500 at least 5%. United led the way, up 9.4%. Here’s how her peers ended up:
Boeing (NYSE: BA) shares gained 5.4% on the day, likely driving the tin winds of higher traffic for commercial air travel, and hoping that demand for the still-ground 737 MAX will recover faster than expected as air travel continues to bounce.
Yet even with the gains reported by the TSA, investors need to step lightly. Air travel over the weekend was still 70% down from the same weekend last year, and the sector remains in deep financial trouble.
Cruise line shares went up today after the win report and call from Royal Caribbean in the second quarter. The cruise giant reported a much larger loss than expected, $ 6.13 per share, and continues to burn more than $ 250 million in cash each month. But despite the rising losses, investors seem to be paying attention to the surprising $ 176 million in revenue the company earned in the quarter.
It seems – as with the TSA Traveler’s data – investors are gripping everything that offers hope of a recovery. In this case, revenue was higher than expected, indicating that there could be a substantial rising demand for cruises when Royal Caribbean returns to sea.
And it wasn’t just Royal Caribbean, shares of Carnival Corp. (NYSE: CCL) en Norwegian Cruise Line Holdings (NASDAQ: NCLH) also won more than 8% after the Royal Caribbean profit.
But it will not only be smooth sailing from here. The CDC (Centers for Disease Control) still has cruise ships on a “no sail” order, and it is possible that will be extended as the coronavirus pandemic becomes less. The big operators have all managed to get significant cash reserves on their books, but at their current burn rates, they will all have massive debt burdens to deal with, even as the pandemic subsides. Like a melting ice cube, its safety margin becomes slightly smaller with each passing month, and the risk of permanent loss for investors increases.
Oxy Income: Buy the rumor, sell the news?
Shares of Occidental Petroleum gained nearly 7% during trading today as investors expected clockwise earnings in the second quarter. However, when release dropped, sales began after hours, with shares down about 5%.
Why the big drip? In short, an expected ugly quarter. Oil demand and prices cratered in Q2, and Oxy lost $ 8.4 billion as a result. The bulk of those losses were $ 6.6 billion in securities, greatly reducing the value of oil and gas assets.
The company said it reduced its cost structure by an expected $ 1.5 billion, but investors remain focusing on the biggest risk: debt. Oxy still has a substantial amount of debt to come over the next few years, but limited access to capital. In June, the company sold $ 2 billion in bonds, all paying 8% or higher interest rates.
Can the company cut its way and refinance from a self-inflicted mess after the purchase of Anadarko? As it stands now, the costs are extremely high, and there is still a very real risk that bankruptcy may be the only way forward.
Earnings ahead
In a relatively quiet week, notable names are set to include quarterly results including food service distribution giant Sysco (NYSE: SYY), reporting August 11; broker for network and communication equipment Cisco Systems (NASDAQ: CSCO), reporting on August 12; and luxury fashion trade Tapestry (NYSE: TPR), reporting on August 13th. Check back here for a closer look at when revenue was released.
