When you're investing for the long term, getting in a stock right-this-minute is hardly ever necessary. Missing out on a few points of gain won't be noticeable if your investment horizon is measured in decades, as it should be, rather than weeks or quarters.
Yet there are times when it's advantageous to get into a stock, and for investors who have $1,000 they're looking to put into the market, buying Norwegian Cruise Line Holdings (NCLH 7.53%) before 2021 might just be a well-timed purchase.
Shares of Norwegian are depressed despite having tripled in value from their March lows. The stock remains 55% below where it started 2020, giving investors a chance to pick it up at a sizable discount and at just the right time.
The cruise operator has in place a methodical plan to resume sailing next year, and a vaccine for COVID-19 was just approved for use by the Food & Drug Administration. That lays the groundwork for a rebound because the cruise industry will lag behind much of the rest of the economy in recovering.
A cruise is an expensive discretionary purchase that customers don't take lightly. Operators won't see immediate gains in bookings until consumers regain confidence in the process, both in the benefits promised from a vaccine and in being in close quarters with others for an extended period.
Investors have time now to buy in before the recovery begins in earnest.
Plenty of ballast
Norwegian took on a lot of debt to make it through the pandemic, including a triple-tranche capital raise in the third quarter that brought in approximately $1.5 billion. Since March, the cruise ship owner took on nearly $4 billion in debt and now has over $10.4 billion outstanding, but it has also significantly extended the maturity profile of its debt portfolio.
At the same time, Norwegian has sufficient liquidity to make it through the crisis, with about $2 billion in cash available to it. The second half of 2020 has seen its cash burn reduced to $160 million per month, in line with management's estimates for its target during a sailing suspension.
Ready to ride the wave
The industry shutdown caused revenue to evaporate, but Norwegian still had ship maintenance and crew expenses to pay. The resumption of sailing, which as of now is forecast to begin sometime in March or April 2021, though realistically could be delayed further, will cause bookings to accelerate.
Already there's been shown to be latent demand for cruises. While obviously far below pre-pandemic norms, Norwegian says 70% of its bookings so far for 2021 are cash, not credits from previous cancellations, and even further out to 2022, 90% are cash. People still want to sail, they just want a safe environment to do it in.
As CFO Mark Kempa put it, rebooting Norwegian's sailing schedule "restarts the cash flywheel and further improves our liquidity profile."
Eyes wide open
Obviously there is risk. Countries reimposing no-sail orders would be devastating and ratings agency S&P Global Ratings put Norwegian on a credit watch for a downgrade due to having extended its cruise suspension for two months.
Barron's quotes S&P as saying, "We expect [Norwegian] to burn more cash relative to our previous expectations and for leverage to remain very high in 2021."
An investment in Norwegian Cruise Lines might not fully be smooth sailing, and there's always the chance for a rogue wave to strike causing consumers to abandon their plans, but travel and tourism could be an industry to see one of the biggest comebacks in 2021, and this cruise ship company should be one investors board to capture those gains.