Carnival Will Be Fine...Don't Believe Me?
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You know, I'm going to bet against the market on this one. I'm going to say that Carnival Corporation (NYSE: CCL) is going to be fine. I know that's counter to what everyone on the cable networks is saying, but they're wrong. It's not like this would be the first time that a yammering head has said dumb things just to sound smart, is it?
Look, I know that Carnival has had the bad week to end all bad weeks. A giant cruise ship has a fire, passengers stranded, the CEO taking heat. Heck, even one of the buses broke down picking up the passengers once they finally got in. Still, it is my opinion that as a company and as an investment, Carnival will be fine. It might even be better than fine since the recent news has led to it being a bit undervalued.
The economy is expanding. Unless those idiots in congress do something truly, stultifyingly dumb, it will continue to do so. When times are good, people spend more money on luxuries. A cruise is a luxury, no two ways about it. And those facts, put together, mean the cruise industry is liable to see some good times ahead, even in the face of recent news.
At this point, everyone with a cable TV hookup knows about Carnival. Yes, the firm has had some bleak news cycles. That's the cause of the stock dropping more than 6% in three days. But underlying that fact is that with almost the worst news it only dropped that much. Carnival is a strong stock with strong growth potential and a dividend yield currently sitting at 2.71%. If anything, the time to buy is now. The firm's P/E is at 22.16 and has dropped significantly this week. There's a deal to be had for a person who is willing to buy and hold CCL.
Royal Caribbean (NYSE: RCL)
A much smaller operation that Carnival, Royal Caribbean operates dozens of vessels with tens of thousands of berths. It's possible that the company will suffer some consequences from the problems that Carnival is having just through being in the same sector. If so, that's a hard thing. RCL doesn't have the muscle or the recent record to handle it as well as Carnival. From a numbers perspective RCL is up 58% since last June, and the board increased the dividend 20% to a current yield of 1.35%. That's not a lot of dividend but it's something, I suppose. While I think Royal Caribbean will do well in the expanding economy, I don't believe it's positioned to do as well as others.
Norwegian Cruise Lines (NASDAQ: NCLH)
Like RCL, Norwegian Cruise Line has the potential to suffer if the business in general drops off due to Carnival's issues. This is a brand spanking new stock, having only gone public LAST month. I think the initial buyers still have the box sitting in their living rooms it's so new. Still, the IPO went well and the stock's climbed 23% since it opened on Jan. 20. I can live with that, given the recent history of other IPOs. The P/E is at 32.13, which tells me that investors are expecting it to go higher in the short term. That's high without being Amazon-level insane. If Norwegian Cruise Lines can even maintain its operating margin of 15.69% from 2012 investors will be happy. I can think of worse plays you can make going into an expanding economy.
Walt Disney (NYSE: DIS)
Did you think I'd forget this? Disney Cruise Lines is a smaller player, overall, but it has the muscle to do whatever it wants to in the market. It's also part of an integrated package with DCL management responsible for the Disney Vacation Club, Disney Adventures and a resort in Hawaii. Whatever bad might happen to the cruise sector it won't happen to Disney's part of it. The company's fanatical devotion to customer care and its reputation will allow it to dodge whatever bullets are out there. From a share-price point of view Disney is excellent, growing by just less than 25% in the last year. It pays a dividend of 1.35%, which isn't going to light anyone up except the most fanatical dividend-lovers, and the P/E of 17.99 indicates that some growth is still anticipated.
The real takeaway here is that Carnival is still a stock worth holding. While it's all the rage to ask in outraged tones about the company, in a year, heck, in three months, people are going to just have a vague unease about cruises in general and not about Carnival in particular. The media will be on to the next shiny disaster/celebrity/weight loss trick, and Carnival will continue to do well as the economy expands. Make your investment decisions accordingly, and don't be a part of the stampeding pack.
Follow Nate on Twitter: @natewooley
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Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!