Why We Could Expect a Zika Rally in These Stocks

When we think of summer, we think of going to the beach or seeing the ocean and soaking up the sun, maybe even going on a cruise. However this summer has been somewhat hampered by the “prevalence” of the Zika virus in the Americas. We know that the broad markets work on the basis of greed and fear, but we have to ask ourselves whether we have become too afraid of Zika and when we can be greedy again. Another question is whether this will play out like the Ebola scare.

The companies getting hit the hardest by this epidemic are travel companies, and especially cruise companies such as Royal Caribbean Cruises Ltd. (NYSE: RCL) and Carnival Corp. (NYSE: CCL).

Originally the outbreak began in Brazil in early 2015 and has spread to the Pacific and other parts of South and North America. The virus is spread by mosquitos and can also be transmitted sexually.

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Brazil, where the 2016 Summer Olympics are being held, is considered the epicenter of the virus, and a sizable number of athletes from all over the world have declined the invitation to participate on the basis that they might contract the virus. Tourists looking to travel in the region have also been discouraged.

Although the overall incidence rate of contracting the Zika virus is low, a number of countries have issued travel warnings that has resulted in significantly decreased tourism. Undoubtedly this has had an impact on the companies that provide these services.

In a similar way that we saw the Ebola scare play out, the iShares Nasdaq Biotechnology (NASDAQ: IBB) made significant gains both then and now. It has gained nearly 13% in just the past quarter. Considering the Ebola outbreak, the airline stocks suffered as they were the main travel service provider to Africa. Keep in mind that at this time airlines only suffered briefly before making a strong recovery, which was boosted even further by lower fuel prices.

Could we expect the same from these cruise stocks and the Zika virus?

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Shares of Royal Caribbean traded down over 4% at $70.77 on Tuesday, with a consensus analyst price target of $94.82 and a 52-week trading range of $64.21 to $103.40.

Carnival was down 2.6% to $45.28, in a 52-week range of $40.52 to $55.77. The consensus price target is $56.73.