As travel demand rebounds, investors can find a lot of value in buying cruise line stocks. Consumers are desperately awaiting a chance to relax and spend the summer months on a cruise. Now is the time to buy these stocks while they are still undervalued.
Top Cruise Line Stocks
Here's a list of the best cruise stocks to buy:
- Carnival (NYSE: CCL)
- Royal Caribbean (NYSE: CCL)
- Norwegian Cruise Line (NYSE: NCLH)
|Company||YTD Price Performance|
|Carnival Cruises (CCL)||27%|
|Royal Caribbean (RCL)||12%|
|Norwegian Cruise Line (NCLH)||12%|
1. Carnival (CCL)
Carnival is one of the world's largest leisure cruise companies with a portfolio of 9 cruise line brands. It's also the largest cruise line by market cap with a nearly $30 billion total market value.
Due to its size, I use Carnival as a measuring stick for gauging the future forecast for the entire cruise line industry. Generally, if Carnival does well then other cruise stocks will follow suit.
CCL stock is up 27% YTD and it looks like cruise stocks will recover nicely once COVID-10 vaccines are distributed and life can return back to normal.
In Carnival most recent Q1 2021 earnings update, the company lost $2 billion with a monthly cash burn of $500 million.
The good news is Q1 2021 booking volumes were 90% higher than Q4 2020, which is a strong signal that cruise demand will continue growing through the year.
Carnival ended the quarter with $11.5 billion in cash and shouldn't need to further dilute the stock through future offerings.
As bas as things may seem, Carnival stock will probably bounce back nicely in 2022 and could be a solid longer term hold.
2. Royal Caribbean (RCL)
Royal Caribbean is the 2nd largest cruise line company by market cap and operates 3 cruise link brands.
The company has suspended the majority of its ships through June 30th, 2021 but currently has 4 ship sailings.
In the Q1 2021 earnings update, the company lost $1.1 billion with a monthly cash burn of $300 million.
In order to weather the storm, Royal Caribbean has raised $12.3 billion since the March 2020 shutdown including several recent stock and note offerings.
New bookings have increased recently and the company ended the quarter with $5.8 billion in cash.
Royal Caribbean maintains a better cash burn than Carnival and I think RCL stock is a bit safer right now than CCL stock. Once Royal Caribbean lifts its travel restrictions in July hopefully then RCL stock should rebound quite nicely.
3. Norwegian Cruise Line (NCLH)
Norwegian Cruise Line is the 3rd largest cruise company by market cap. It's my least favorite cruise link stock behind Carnival & Royal Caribbean due to its smaller ship fleet and lower revenue.
After a long hiatus, the company plans to restart cruise operations on July 25th, 2021 in anticipation of the higher sumer cruise demand.
In the most recent Q1 2021 earnings report, the company lost $1.4 billion with a monthly cash burn of $190 million.
The good news is Norwegian posted $1.3 billion in advance ticket sales so hopefully NCLH rebounds nicely in the 2nd half of 2021.
The company has recently raised cash via a stock offering along with a total debt position of $12.2 billion. The total cash position is $3.5 billion.
NCLH stock is the least favorite of these 3 stocks but could have some upside since NCLH maintains the smallest market cap.
Will Cruise Stocks Rebound?
Cruise stocks have rebounded quite nicely from their March 2020 lows and will probably recover to their pre-COVID-19 levels by 2022. But should investors take on the risk?
The best time to buy cruise stocks was back in March 2020 when everyone panic sold them. Even though things are improving, cash burn remains high and the cruise industry relies on an asset-heavy, capital heavy business model.
I prefer to invest in asset-light companies that don't require huge capital investments and can thrive in most geopolitical environments.
I do think cruise stocks will rebound but I won't bother investing in them personally.
Why I Don't Invest in Cruise Line Stocks
While cruise line stocks may be undervalued in the long term, I don't personally invest in any cruise stocks due to the massive fuel requirements for these companies. Cruise ships consume a lot of fuel that impacts our planet in a negative way.
Instead of investing in cruise line stocks, I prefer to bet on renewable energy stocks (i.e. EV stocks) as we move toward a sustainable energy future. If cruise companies plan to invest in electric powered cruise ships then I'll reassess this industry with a different mindset.
Feel free to see my entire investment portfolio to discover which stocks I'm currently holding.
There are several important risk factors to consider before investing in cruise link stocks. COVID-19 showed just how vulnerable the global travel industry was and many investors lost their shirts. While 2022 bookings are strong, there are several pitfalls to consider:
- A 4th or 5th COVID-19 wave could further delay the global travel rebound. Many countries, especially in Europe and Asia, have experienced surging cases while the United States returns to normalcy. If cases continue spiking then many tourists will cancel or postpone travel plans, which could crush the potential cruise rebound.
- Massive cash burn is a growing problem in the cruise link industry even though future 2022 bookings have increased. Companies like Carnival burn through $500 million a month and must sell stock through offerings and take on debt to stay afloat. It could take years for cruise lines to return to profitability.
If you're looking for the best overall cruise link stock then Royal Caribbean or Carnival are two great choices.
I'd lean towards Royal Caribbean because they have lower cash burn and earn more revenue per passenger than Carnival. Carnival is a good pick if you're betting on a strong recovery for the cruise line industry.
Norwegian Cruise Line stock is a good choice if you're European or looking for some mid-cap exposure.