The cruise stocks to sell now all have one thing in common: cruise tourism took quite a setback during the pandemic. Though demand has recovered from last year, the top cruise liners have struggled to reach full capacity.
With inflation and interest rates running rampant, it’s probably the right time for you to look at which cruise stocks to sell.
It’s a terrible time for consumer discretionary industries, with the rising inflation rates eroding disposable incomes. Moreover, the ongoing conflict in Ukraine and the increase in oil prices have significantly weighed down prospects for various industries.
The current economic headwinds have thrown a wrench in the plans of major cruise liners, which were looking to mount a comeback.
According to BofA Global Research, the top cruise line operators will likely witness pricing softness well into 2023 and 2024. Hence, the industry is in a major spot of bother, making it a lackluster long-term investment.
Cruise Stocks: Royal Caribbean Group (RCL)
Royal Caribbean Group (NYSE:RCL) is among the world’s top three cruise line operators, with over 85,000 employees. With its ships docked at port for the better part of the pandemic, it was forced to take up an insane amount of debt to keep itself afloat.
Though recent results have been mighty encouraging, there are still plenty of red flags that make RCL one of the cruise stocks to sell before they trend any lower.
During its recently-concluded second quarter, load factors came in at 82% and are expected to climb higher in the third quarter. However, bookings for the year’s second half are below historic ranges compared to 2019.
The unprecedented economic conditions at this time are likely to weigh down its near-term prospects.
Furthermore, RCL’s financial positioning remains a major concern. Debt levels remain sky-high while its free cash flows (FCF) remain firmly in the red. It recently announced a 39% increase in its debt offering to $1.25 billion. The new debt will be used to roll over its old debt but will cost more than triple in terms of interest rate payments.
Carnival Corporation (CCL)
Carnival Corporation (NYSE:CCL) is the largest cruise line operator in the world in terms of market share. In 2019, it generated a whopping $20.8 billion in sales, with a remarkable EBITDA balance of $5.43 billion. However, it’s been nothing but carnage in the past couple of years.
We have seen a marked increase in sales in recent quarters but its financial structure remains compromised after a couple of years of losses.
Debt levels have increased by more than three times, plus stringent covenants have limited its maneuverability. CCL’s management believes inflation and supply chain problems that have weighed down recent results will likely fade away within the next few quarters. However, nothing is certain in the current economic climate.
Perhaps one of the things that is more attractive about CCL compared with its peers is its beaten-down valuation. The pullback in price has made it more attractive than in the past, but it’s still one of the cruise stocks to sell because it is overpriced compared to the travel sector in general.
Cruise Stocks: Norwegian Cruise Lines (NCLH)
Norwegian Cruise Lines (NYSE:NCLH) is the third-largest cruise line operator, with roughly a 15% market share in the industry. It may sound like a broken record, but it’s the same sob story for NCLH as it is with its peers. Liquidity and profitability metrics remain a massive concern, as is with its competition.
Its recently-released results have shown an uptick in fuel costs, which have weighed down company profits. Moreover, it has had to take up more debt to continue financing its operations.
Its debt levels have risen by almost 95% from 2019 to the second quarter of this year. Additionally, it continues to dilute its shareholders by issuing more equity.
NCLH had a track record of buying back shares in the pre-pandemic days; however, its share count almost doubled once the pandemic kicked in. Therefore, it seems unlikely that the stock price will return to its previous levels seen prior to the pandemic in the near term.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
