When investors consider cruise stocks, there is a very short list of pure-play equities available. That’s because the industry itself is highly consolidated and capital-expenditure heavy, meaning a higher barrier to entry. In fact, the industry’s major players — there are only three — own multiple sub-brand cruise lines. They control three-quarters of the field.
Yet, regardless of industry landscape, investors remain curious about how to play these stocks today. To no one’s surprise, cruise stocks have been battered this year. Revenues have declined massively and market capitalization has plummeted across the board.
Additionally, up until Oct. 30, the Centers for Disease Control and Prevention (CDC) had mandated a No Sail Order for cruise ships. Now, though, cruise lines are only subject to a Conditional Sailing Order. That allows for the phased resumption of operations in U.S. waters.
So, currently all of the cruises have a limited right to set sail again. Investors were already speculating on these names, foreseeing their comeback. That narrative just got a boost. Now, buying at pandemic lows could net very healthy returns. It’s time for investors to give these cruise stocks another look.
- Carnival (NYSE:CCL)
- Royal Caribbean Group (NYSE:RCL)
- Norwegian Cruise Lines (NYSE:NCLH)
- Lindblad Expeditions Holdings (NASDAQ:LIND)
- Disney (NYSE:DIS)
- OneSpaWorld (NASDAQ:OSW)
- World Fuel Services (NYSE:INT)
Cruise Stocks to Buy: Carnival (CCL)
Carnival has five brands operating within North America — Carnival, Cunard, Holland America, Princess Cruises and Seabourn. All five will be paused at least through Dec. 31.
However, AIDA cruises — which operates in Europe — has resumed some of its operations. Also, another brand under CCL’s umbrella called P&O Cruises has paused operations through April 2021.
So, it’s safe to say that Carnival has had and continues to have an unprecedented year. To that end, the company issued $1.45 billion in senior notes and an additional 500 million euros due in 2026 in order to raise capital.
The company has also been cost-cutting for efficiency. CCL is in the process of removing 18 ships from its fleet that are leaking money. What’s more, cash burn rate continues to be a significant problem for the company, which saw a GAAP loss of $2.9 billion in its third quarter this year. That number means Carnival experienced a daily cash burn rate of about $32.2 million during Q3 based on GAAP reporting standards.
As such, CCL stock is certainly hoping to resume operations. Despite the nightmarish year, the company maintains significant liquidity at $8.2 billion. It plans to seek further liquidity to shore up future operations as opportunities arise. Assuming Carnival plays things right, it could also still have enough liquidity to see it through at least two quarters, more likely three.
Royal Caribbean (RCL)
Next on my list of cruise stocks is Royal Caribbean. The company has suffered along with the other major cruise lines this year, but a little less so.
In Q3, RCL recorded a net loss of $1.3 billion, as opposed to the net of $883 million in the same period last year. Year-to-date (YTD), RCL stock is down 37.5%, compared to a nearly 56% decline for CCL stock in the same period.
However, the company will resume international cruises from Singapore this December. Royal Caribbean also offered a recent round of senior convertible notes in an effort to raise capital. Importantly, it raised a significant amount of capital via a public offering of shares in mid-October, too — the stock sold for $60 a piece and 8.3 million shares were offered. As a result, Royal Caribbean was able to raise $1.15 billion.
Like others, Royal Caribbean is certainly hoping for changes going into 2021. Currently, RCL operates 26 ships with plans to bring more into the fleet. Investors could take that as a vote of internal confidence for the future, given the capital expenditures necessary to make the expansion happen.
Right now, Royal Caribbean has liquidity reserves of $3.7 billion. That means the company is in no immediate danger of bankruptcy, based on average quarterly cash burn of roughly $1 billion.
Norwegian Cruise Lines (NCLH)
Norwegian Cruise Lines is the last of the big three lines on this list of cruise stocks. It has seen a 57% drop in market capitalization YTD, very similar to Carnival.
As discussed before, RCL stock has declined the least, with CCL stock and NCLH stock suffering more. Investors can look at this in a few ways. One way is to say that Royal Caribbean declined the least and is therefore the safest. But the contrarian play is to assume that neither Carnival nor Norwegian will go bankrupt and both will ultimately rise. And since they’ve declined to a greater degree, the theory would be that they have much more room to rise.
In an effort to raise capital, Norwegian recently offered 40 million ordinary shares at $20.80, which should make for $832 million in cash. NCLH stock now has over 275 million shares outstanding which also introduces the possibility of shareholder dilution with the new issuance.
Finally, when it comes to revenue, Norwegian is down 74.5% through the first three quarters of 2020 as opposed to 2019.
Investors can see that these three major cruise lines are in similar situations and are undertaking very similar approaches to the pandemic. Each has lost tons of market cap, is issuing convertible notes and shares to raise capital, yet also have sufficient liquidity. When it comes to Norwegian specifically, though, investors need to decide if they want to make that contrarian play.
Lindblad Expeditions (LIND)
Lindblad Expeditions is a company that provides cruises in partnership with National Geographic. The company caters more to remote wilderness and ecologically responsible cultural tourism than other firms on this list of cruise stocks.
Trip prices can range anywhere between $5,000 and $25,000, depending on the destination. So, it isn’t hard to see why this company would be eager to get through the pandemic and set sail again.
Of course, the company’s revenues have been severely affected by Covid-19. Lindblad posted nearly $101 million in Q3 of 2019. This year, however, it posted just $1.02 million in Q3. Year-to-year decreases don’t get much starker than that.
The comparison through the first three quarters of each year isn’t nearly as bad, but still severe. Through Q3 2019, the company made $267 million in tour revenues but less than $82 million thus far in 2020. So, if the pandemic turns around, this stock has a lot of room to regain.
Disney’s cruise line is much smaller than the previous companies on this list. Currently, the line operates only four ships. More importantly, though, DIS stock is not a pure play when it comes to cruise stocks. It is simply a part of the larger Disney group.
Of course, this company is certainly looking forward to a resumption of operations across many of its segments. Right now, Disney has suspended departures through the end of January 2021.
In 2019, the cruise line reported $406 million in profit on $1.6 billion in revenue. But this year, it effectively shut down and hasn’t been able to sail since March.
Like most companies, DIS has had a tumultuous year due to the pandemic. It estimates that it lost $2.4 billion in the most recent quarter and $6.9 billion this year in its Parks, Experiences and Products segment. Therefore, investors may not be shocked to know that Disney has announced it will forego its semi-annual cash dividend in the second half of 2020.
So, the sooner the company can resume cruise line operations, the better.
OneSpaWorld operates 20 global cruise line spa brands. It also has operations in 67 different destination resorts. So, naturally it has suffered this year — the company is highly dependent upon cruise line operations for its own revenue and operations.
The good news, though, is that OSW anticipates having proper liquidity and cash on hand to fund operations through at least December of 2021. However, all but three of its 166 cruise spas remain closed and 31 of its 51 resort spas are operating only at limited capacity.
The company noted that revenues decreased by 99% to $1.8 million in Q3 of 2020. OneSpaWorld posted $144.9 million in revenues in the same period last year. The first nine months of 2020 were not quite as severe, yet revenues declined by 72%. Additionally, the company suffered a $45.1 million adjusted net loss through the first three quarters. In 2019, it had posted $26 million in the positive.
However, three analysts recently initiated coverage of OSW stock and all recommend it as a buy. Ostensibly, they believe that the company will rise because it has enough liquidity to weather a full year. Cruises should certainly resume by that time, barring some unimaginable circumstances.
World Fuel Services (INT)
World Fuel Services is a Fortune 100 company that serves aviation, land and marine-centered businesses. The company has over 8,000 fueling stations in almost 200 countries. It also reported a 30% year-over-year decrease in gross profits. Its marine division had losses of 40%.
So, much like the pure-play cruise stocks, INT’s marine fueling segment has suffered highly but likely has the most room to rebound. INT stock began the year at $43.19 and currently sits at a little over $29. However, since the beginning of October, it has risen over 37%. That suggests momentum toward early 2020 prices.
On top of that, the company serves multiple partners other than cruise lines within its marine sector. World Fuel Services provides for yachts, container ships and military vessels, among others. INT doesn’t break down the marine segment by line items in these categories, so we can only guess how deep of an effect cruise line stagnation has had.
Nevertheless, investors can safely assume that a resumption in cruise operations will be a big positive for INT stock.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.