3 Undervalued Cruise Stocks to Buy Now

  • These undervalued cruise stocks are proving the skeptics wrong with incredible quarterly results and massive upside.
  • Carnival (CCL): Fears of a recession seem overblown at this point, and CCL can take advantage of the pent-up demand.
  • Royal Caribbean Cruises (RCL): Improving fleet numbers, higher occupancy rates and stronger price flexibility make it a fascinating wager.
  • Norwegian Cruise Line (NCLH): A compelling pick that saw its highest-ever onboard revenue generation during the second quarter.
Undervalued Cruise Stocks - 3 Undervalued Cruise Stocks to Buy Now

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There are plenty of undervalued cruise stocks investors could pick up amidst the current economic conditions and resultant market downturn. The sector took a hit during the pandemic, and staying afloat became a challenge with every cruise liner’s ships docked at port for for the past two years.

However, the A-list cruise companies were able to shore up their finances and effectively prepare for the release of pent-up demand. Their recent results are a testament to the strong consumer demand for travel.

Furthermore, last month, oil and gas prices dipped 11% and 7.6%, respectively. Moreover, it seems the colossal debt loads in the cruise sector should be less problematic, as the likelihood of another interest rate hike fell significantly.

Inflation rates in July came in flat, which points to the success of the Federal Reserve’s policy in managing inflation. Therefore, here are three undervalued cruise line stocks you’d want to invest in at current levels.

Undervalued Cruise Stocks: Carnival (CCL)

Carnival cruise (CCL) ship on the water
Source: Ruth Peterkin / Shutterstock.com

Carnival (NYSE:CCL) is the largest cruise line operator and an industry bellwether. The pandemic had its ships docked for nearly two years, burning its stock price in the process. With pandemic restrictions easing, the company will be mounting a comeback. However, the challenging macroeconomic conditions have added more fuel to the fire.

Despite the difficult market, Carnival performed remarkably well in its most-recent quarter. Second-quarter sales were up 50% compared to the first quarter, while it reported a 69% growth in occupancy levels. Moreover, it can effectively reduce its enormous debt load with more cash equivalents than before the pandemic.

Fears of a potential recession seem to be overblown at this point. Once the industry is back at full capacity, CCL should be able to take advantage of its massive fleet. Moreover, its strong liquidity positioning will enable it to operate worldwide and capitalize on the pent-up demand for travel.

Furthermore, CCL’s current valuation makes it more attractive than ever. It trades at just over two times trailing 12-month sales, roughly 85% lower than its five-year average.

Royal Caribbean Cruises (RCL)

Serenade of the Seas cruise
Source: NAN728 / Shutterstock.com

Royal Caribbean Cruises (NYSE:RCL) is another industry stalwart with more than 50 years of experience in the cruise sector. It has done a remarkable job monetizing its passengers and capitalizing on the vast potential of its ships to the best of its ability. Moreover, it has a healthy 25% market share in the worldwide cruising market places. With an improving fleet, higher occupancy rates and greater flexibility in adjusting prices, I expect RCL stock to exit the pandemic with aplomb.

Recent results have shown that the company is effectively navigating the challenging market conditions. Its second-quarter results showed a colossal 4,182% increase in sales to $2.18 billion on a year-over-year basis. Moreover, load factors for the quarter came in at 82% overall, while its fleet is back to operations across several of its key destinations. Hence, it seems Royal Caribbean has significantly improved its financial conditions amidst a return to the seas.

One of the more encouraging things about RCL is it has done exceedingly well in passing on higher prices to its customer base. Moreover, its customers have accommodated the higher prices given the travel and hospitality environment. As a result, RCL expects a return to profitability in the third quarter, forecasting its adjusted EBITDA to fall in the $700 million to $750 million range. All the while, its shares are trading near historic lows, which further adds to its attractiveness.

Undervalued Cruise Stocks: Norwegian Cruise Line (NCLH)

Norwegian Pearl, a Norwegian Cruise Line (NCLH) ship, in the middle of the ocean
Source: Vytautas Kielaitis/shutterstock.com

Norwegian Cruise Line (NYSE:NCLH) completes the trifecta of the crème de la crème of cruise line operators. It has established itself as a leader in upscale cruising and operates a world-class fleet, which it continues to enhance with new additions. It recently added Norwegian Prima, the first of six ships in the company’s Prima Class of cruise lines.

Like its peers, it’s been experiencing strong consumer demand, reflected in its recording pricing, accelerated bookings and its “highest ever onboard revenue generation” in the second quarter. It made a whopping $1.19 billion in sales, which represents a 26,945.5% growth from the prior-year period. Moreover, it exited the second quarter with $1.9 billion in cash equivalents, a significant improvement from pre-pandemic levels.

However, its debt balances continue to grow, which adds to its bear case. Nevertheless, its share price is trading at multi-year lows and is attractive based on its encouraging outlook ahead.

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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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