Carnival Corp (NYSE:CCL) is the largest cruise ship company in the world. But with that size comes significant challenges when the economy around the world is sputtering. And that is why CCL stock is off nearly 17% year-to-date.
Overcapacity was a big dark cloud around the entire cruise industry because Europe was in worse shape than the U.S., as was Australia. If fewer people can afford to cruise, then the huge liners were going to be sailing with empty berths. The Brexit vote didn’t help either.
But on the bright side, fuel costs have been slashed and if there is one thing that cruise lines spend huge sums on, it’s fuel.
Don’t Count CCL Stock Out Just Yet
As a matter of fact, Carnival is now building three mega-ships that carry 5,000+ passengers and all three run on liquefied natural gas. This is a pioneering step in the cruise industry and should pay huge dividends when it comes to environmental regulations and fuel costs when oil prices rebound. The massive ships also will make it more attractive to families and large groups.
CCL has major global brands — Princess, Holland America, Cunard, Seabourn — as well as regional brands in Europe and Australia — Costa, P&O, Fathom. That means their fleet is especially diverse and runs from budget priced cruising to luxury travel.
And that’s a very good thing, because in many of Carnival’s markets, there are a lot people who have yet to take a cruise at all. That is a significant market and the diversity of ships makes overcoming that initial barrier easier for a company like CCL.
But the fact is, CCL stock is still attractive as a long-term pick. The current situation isn’t anything new to the travel industry. The business follows cycles just like every other business and it’s the good companies that know how to sail the shoals as well as the blue water that endure.
Also, Carnival is paying out a decent 3% dividend yield right now. When you’re buying a stock with a dividend, there’s no point in trading it; you keep it around for the total return kicker when the stock revives.
That shouldn’t take long for CCL stock.
The irony is, analysts actually like the stock. Of the 22 analysts that cover the stock, 12 rate it a strong buy, or buy. None of them have it as a sell. And only one rates CCL underperform.
What’s more, CCL has been surprising significantly on earnings, quarter after quarter. It surprised to the upside on its last earnings release in May by 25%. The February numbers were a 22% surprise to the upside. And this is more the norm than the exception for the last several quarters.
And as can be said of every other industry, cruising has yet to even tap into the travel demand in India and China. This could be a stupendous market and it’s virtually untapped. But it will remain that way until the global economy gets back on its feet.
That is why now is a great time to pick up CCL stock. It’s still cheap and the herds aren’t grazing there yet.
Carnival is a solid company that has been around since the early 1970s, longer than most of the other major players today. It has weathered oil embargoes and revolutions. This economy is another dip in the overall business cycle — this too shall pass.
And when it does, there will be enormous growth opportunities for major players like CCL.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
