In time, I think the cruise industry will rebound very sharply. I also think that the industry stands to benefit as populations in the States and abroad continue to increase. By extension, these are major reasons why I'm constructive on both Carnival (NYSE:CCL) and Royal Caribbean (NYSE:RCL).

Let's check out Royal Caribbean in a little more detail, ahead of its second-quarter earnings which are due out later this month.

IN PICTURES: Vacation Savings Tips

Long-Term Smooth Sailing
Though I've explained some of my reasoning for being optimistic about RCL, there are several other things that make me think that the shares could really push higher longer-term.

Despite consumers' unwillingness to travel and part with their cash as of late, the company is still expected to generate a pretty big profit this year. At present, The Street is looking for the operator to earn $1.02 this year. Royal is also expected to grow at a little more than 5% per annum in the next five years, which I think is pretty attractive for a company of its size (just under $6 billion in expected revenue this year), and given that the world economy still remains under some pressure.

Future Possibilities
Another thing that could drive the stock is if the government were to give permission for cruise companies and other travel companies to visit Cuba. Why? Because Americans haven't been able to travel there in eons and I think that there could be a groundswell of interest in such a trip. With President Obama in the White House, I think this could ultimately happen.

I'm optimistic that the upcoming earnings release could show some upside to the 12-cent a share loss analysts are looking for. I'm also hoping management provides some positive and upbeat news about new bookings. With the economy seemingly on the mend, my hunch is that Royal's sales have been picking up.

Why Not Airlines?
If the economy is rebounding, why bet on cruise lines and not airlines? Put simply, cruise lines have a variety of exciting ways to make money while airlines have just one. Put another way, how many knick knacks can you buy on an American Airlines (NYSE:AMR), Delta (NYSE:DAL) or Southwest (NYSE:LUV) flight? Can you gamble? Do you have the opportunity to buy a picture of yourself boarding the flight? Finally, how much liquor are you really going to consume on a flight that lasts only a few hours? As well, cruise lines, such as Royal and Carnival, are expected to make money this year, while AMR and Delta are expected to post losses, and Southwest is expected to generate a fairly small profit.

Bottom Line
Although cruise operators haven't gotten a lot of attention recently, I think they deserve a look. I'm particularly fond of Royal Caribbean because it's expected to hold up very well on the earnings front in this environment, and because it's expected to grow at a respectable clip in the next five years. If Cuba ever opens up I think that would be icing on the cake. (For more, check out 3 Money-Saving Cruise Ship Tips.)

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Tickers in this Article: RCL, CCL, AMR, DAL, LUV

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