During the pandemic, cruise companies were completely closed down for more than a year. The result was massive debt accumulation and crumbling share prices. Moreover, even after the pandemic was over, their stocks generally performed poorly due to investor’s concerns about the impact of high rates on these heavily indebted firms. But in the last year, as the cruise sector thrived and inflation subsided, easing worries about interest rates, the cruise stocks have made a big comeback. And with consumer spending on vacations still quite elevated and the Fed seemingly determined to cut rates in 2024, the cruise operators’ stocks should continue to deliver excellent returns for at least the rest of this year. For investors who want to exploit the sector’s strength, here are three cruise stocks to buy.
Carnival (CCL)
The largest cruise line with a market share of about 43%, Carnival (NYSE:CCL) had already sold enough tickets as of December to account for over 65% of its capacity in 2024.
During Carnival’s fiscal fourth quarter, its revenue jumped 40% versus the same period a year earlier to $5.4 billion, while its operating income came in at $484 million, much better than the $1.13 billion of operating loss that the firm generated in Q4 of 2022. Also noteworthy is that Carnival generated an impressive total free cash flow, excluding certain items, of $2.1 billion during its full fiscal 2023.
Meanwhile, the firm’s total top line reached a record $5.4 billion last year, while its net cruise revenue per passenger day also hit an all-time high and came in meaningfully above 2019 levels.
Increasing my confidence in the outlook of CCL stock, purchases of the shares by the company’s insiders as a percentage of market capitalization came in at the second-highest level among the S&P 500 companies evaluated by Citi earlier this month.
Royal Caribbean (RCL)
Research firm Hedgeye recently identified Royal Caribbean (NYSE:RCL) as one of its top picks.
“RCL raised EPS and yield growth guidance by healthy amounts,” Hedgeye noted. Hedgeye thinks that the shares may rally a great deal as we enter peak cruise season in the second and third quarter.
On the bottom line last quarter, RCL’s net income came in at $300 million, versus a loss of $500 million in Q4 of 2022. For all of 2024, the firm expects its earnings per share ,excluding certain items, to jump 40% to $9.50 to $9.70.
As a result, RCL stock is changing hands at a fairly low forward price-earnings ratio of 13, even given its huge net debt of nearly $22 billion.
Also noteworthy is that institutional investors bought 15.65 million shares last quarter and only sold 11 million shares of the name.
OneSpaWorld (OSW)
For those looking for both considerable exposure to the cruise sector and lower debt ratios than those under which Carnival and Royal Caribbean labor, OneSpaWorld (NASDAQ:OSW) is one of the best cruise stocks to buy.
The firm specializes in providing spa services on cruise lines and has long-term relationships with major cruise lines. Indeed, it controls 90% of the market for outsourced spas on cruises through contracts with Royal Caribbean, Carnival and Norwegian Cruise Lines (NYSE:NCLH).
OneSpa’s net debt is less than two times its 2023 EBITDA, while the equivalent ratios for CCL and RCL are seven times and five times, respectively.
But OSW, like RCL and CCl, is growing rapidly as a result of the cruise sector’s recovery, with its top line climbing 15% last quarter versus the same period a year earlier to $195 million and its 2023 EBITDA, excluding certain items, jumping 45% to $794 million.
On the date of publication, Larry Ramer did not hold (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.
