Filed Under:
Tickers in this Article: CCL, RCL, IHG, MAR
Exotic and hyper expensive vacations probably aren't and won't be in the works for most this year, and maybe next year as well, thanks to still languishing economic conditions. However, that doesn't mean that some companies, particularly the large cruise lines, can't fare well. To the contrary, that both Carnival (NYSE:CCL) and Royal Caribbean (NYSE:RCL) are good plays. Here is why.

IN PICTURES: Digging Out Of Debt In 8 Steps

Cruising For Profits
From a big picture view there are several attractive things about the cruise business. For one, it is still one of the most cost effective ways to travel to multiple destinations on a single trip. Second, it isn't just about the room. The major cruise lines have gambling and serve expensive drinks, not to mention a bevy of souvenirs. And with the economy coming back, each of these segments could get a nice lift from passengers.

On the earnings front, this past quarter was pretty smooth sailing for Carnival. The Miami based company released its first quarter earnings earlier in the week. It earned 22 cents per share. Analysts had been expecting a profit of 14 cents. The outlook offered in the earnings release also stands out, "the company now forecasts full year 2010 fully diluted earnings per share to be in the range of $2.25 to $2.35, compared to its December guidance range of $2.10 to $2.30."

Based upon the earnings outlook, a share price in the mid $40s seems more "fair" or reasonable. Of course Carnival isn't the only company that deserves a look in this space.

Royal Caribbean
Carnival's big rival, Royal Caribbean is worth a look too. With fabulous ships, an excellent reputation and its ability to service many desirable ports, the company has the potential for a bright future. On the earnings front RCL has been holding its own despite some difficult operating conditions. Data indicates its beaten Street expectations two quarters in a row and over the last roughly three months estimates have shot up sharply for this year and next.

RCL is also trading near its 52-week highs. This is important because stocks that have some wind at their backs and are trading near their highs can sometimes make the radar screens of institutions looking to add winners to their respective portfolios. Investors looking for momentum plays may also be intrigued if it hits a new high. My feel is that the shares could still have 10% or so upside from here.

Other Vacation Plays
With many Americans more likely to travel, Marriott (NYSE:MAR) shouldn't be overlooked. Its huge footprint of locations and reasonable room rates make it a big force in the hotel and travel business. The company is expected to earn 94 cents a share this year and $1.18 per share in 2011. Meanwhile, International Hotels Group (NYSE:IHG), known for Candlewood Suites, and Holiday Inn Express has had a pretty good record beating estimates in the previous year. It also seems well-positioned to enjoy a bright future.

Bottom Line
Americans are still going to be a conservative bunch this year. But many are starting to ramp up their spending. As such, yours truly is warming even more to the cruise lines as an investment. Both Carnival and Royal Caribbean have produced solid earnings given this environment and both appear to be well-positioned longer-term to take advantage of what should be a strong demand for leisure related trips. (Also take a look at other companies that may benefit from a rebound in demand in Big Dividends in Oil and Gas)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center