With millions of Americans vaccinated and still more to come, is it finally safe to stick your toe in the water with cruise stocks? I believe it’s still a couple months too early, but it’s certainly worth your time to kick the tires and start your research.
The pandemic brought on by the novel coronavirus affected the cruise lines particularly hard. Airlines and hotels faced similar challenges, but it’s still legal to fly on a plane or stay in a hotel. By contrast, cruise lines were under a No Sail Order through October 2020. This suspended passenger operations on cruise ships with at least a 250-passenger capacity in waters subject to U.S. jurisdiction.
However even with the expiration of that order, all of the major carriers are voluntarily extending their suspension. This means no revenue. And that means investors have to play a game of which of the cruise operators can burn through the least cash.
That’s not a game I want to play. However, that doesn’t mean that cruise stocks don’t belong on your watch list. If you believe that passenger traffic will return, then you can find an opportune moment to pull the trigger on these stocks.
There aren’t many pure plays in the cruise line industry. So a couple of these stocks are a different way to play the return of cruising.
- Carnival (NYSE:CCL)
- Royal Caribbean Group (NYSE:RCL)
- Norwegian Cruise Line Holdings (NYSE:NCLH)
- Lindblad Expeditions Holdings (NASDAQ:LIND)
- Disney (NYSE:DIS)
- Agilysys (NASDAQ:AGYS)
- EVI Industries (NYSEAMERICAN:EVI)
Carnival illustrates the problem that cruise stocks are going to face as they try to return to normal. Simply put, CCL stock will likely have to drop before it can go higher. In a previous article I explained what I mean.
In 2019, Carnival generated $20.82 billion in revenue and had earnings per share (EPS) of $4.40. This year, Carnival will be fortunate to hit $6 billion in revenue and is projecting a negative EPS of over $7 per share.
Assuming that Carnival can double its revenue next year (and that’s a big if) and get to a positive EPS (an even bigger if), you’d be hard pressed to see CCL stock moving a lot higher than its current level of around $18 per share.
I say that because at the end of 2008, as the Great Recession probably was at its worst, Carnival stock was trading at around $18 per share. That’s almost exactly what it trades at as of this writing. But it was a drop from the $40 share it was trading at just three months prior.
It took nearly two years for the stock to get back to that level. And that was in the aftermath of “just” an economic crisis. Cruise lines are facing the double whammy of an economic crisis along with the psychological impact of a public health emergency.
Royal Caribbean Group (RCL)
Let’s start with the good news. According to U.S. News & World Report, Royal Caribbean Group is rated as the best cruise line for the money. But that’s of little use to the company when it can’t prove that value to its customers. And right now, that rating comes as a double-edged sword.
Among the pure play cruise stocks, RCL stock is by far the most expensive on a share price basis. Even after dropping nearly 80% at the onset of the pandemic, the stock still trades at $66.50 per share at the time of this writing.
Granted, the stock hasn’t been this low in seven years. However when you look at the numbers, you wonder what investors are seeing. The company’s fourth quarter earnings report next week is likely to be dreadful. And with cruising unlikely to restart until summer at the earliest, RCL stock will be a better buy at a lower, and perhaps a much lower, entry point.
Norwegian Cruise Lines (NCLH)
The last of the big three cruise stocks to look at is Norwegian Cruise Lines. And if you forced me to put money on one of these stocks right now, it may very well be NCLH stock. Here’s why.
First, the stock got punished just as much than Royal Caribbean and Carnival. However, the stock is still lower than at any time since it has been publicly trading.
But another reason I like Norwegian here is that it had a demonstrably “less-bad” quarter than either of the other two cruise lines. Norwegian’s third quarter loss was just over $677 million. As InvestorPlace contributor Alex Sirois remarked, that was less than the losses posted by RCL and CCL.
But before you put your money down, you have to look at the company’s revenue and earnings. And Norwegian is no better off than the other cruise lines. Early on in the pandemic, the cruise line intimated that it might have to go out of business, but it now looks to be in better shape after borrowing up to $3 billion to boost its cash reserves.
Lindblad Expeditions (LIND)
If you’re unfamiliar with Lindblad Expeditions, you’re probably not alone. The company has a partnership with National Geographic and sails in remote wilderness areas and extreme locations. For example, it’s one of the few opportunities that individuals have to visit Antarctica.
Of course, just because Antarctica may be immune from the novel coronavirus does not mean the cruise line has permission to make such a trip. Its ships are stuck in dry dock with the other cruise lines and that’s reflected in its revenue. The cruise line has booked just $82 million through the first three quarters of the year. That’s a far cry from the $267 million they earned in the prior year.
However, unlike the pure-play cruise stocks on this list, LIND stock has gained back its entire pandemic loss. And the company’s cruises are quite pricey, but that should be less of an issue because if the well-heeled in our society can afford to take a whirl in sub-orbital space, laying out $25K on a cruise is nothing.
Disney is a small but important player among cruise line stocks. The company operates just four cruise ships. However, Disney has made its bones by bundling a cruise into a Disney vacation.
However, it’s been a rough year for Disney as a whole. And it’s proven that the whole of Disney is greater than the sum of its parts. Despite Walt Disney World in Florida being open for business, the cruise liners have stayed stuck in port.
While I’m sure that, in terms of DIS stock, the reopening of Disneyland in California will have much more of an impact on revenue, the company still wants to get the cruise lines back up and running.
I’ve been bullish on Disney despite the pandemic. It has brand equity that will remain strong. My social media feed tells me that people are still visiting the House of Mouse even if Mickey is wearing a mask.
It’s not hard to make the leap that customers will run up the gangplank to take a Disney cruise when they are able. And Disney will be able to take some of its learnings from the park reopening to apply to keeping a safe environment on its ships.
Moving away from cruise ships altogether, consider Agilysys. If you’ve ever been on a cruise you know that cash is definitely not king. And after we all navigate this pandemic, cruisers will be placing a premium on a simple, contactless payment experience.
This is where Agilysys comes in. The company provides systems and software to help cruise lines create a delightful experience for their customers. According to its website, the company provides cruise lines with features that enable electronic waivers and streamlined registration for childcare and other services. Plus they allow handheld transactions so guests have a safe, carefree experience.
Cruise ships are only one source of revenue for Agilysys. Suffice it to say, it operates in many venues that were affected by the pandemic. However, in late November, AGYS stock shot to its record high and has sustained the gain. That suggests that investors are betting on a strong recovery and that Agilysys will have a role in that reopening.
EVI Industries (EVI)
The last of our cruise stocks to consider is EVI Industries. Sanitation is going to be extremely important on cruise ships (as if it wasn’t already). EVI distributes commercial laundry and dry cleaning equipment, industrial boilers; along with relate parts and technical services. The company is headquartered in Miami, Florida, which puts it on the home turf of many cruise lines.
It’s not what you would consider a sexy stock. It doesn’t even pay a dividend. Still, EVI stock has a lot going for it from a technical as well as a fundamental perspective. The company’s revenue and earnings have held up during the pandemic, and the stock price reflects that. EVI stock has made up its entire pandemic lost and is trading higher than it has nearly 18 months.
Some of that may be due to the fact that the company counts many professional sports franchises as customers. However, like Agilysys, EVI will also benefit from the recovery in hotels, motels, restaurants and bars.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.