The romance of exotic cruising is dead on Valentine's Day. It's now been 11 months since Norwegian Cruise Line Holdings (NYSE:NCLH) and industry leader Carnival (NYSE:CCL) (NYSE:CUK) hit the high seas with revenue-generating passengers. It won't be until at least May when cruise lines are back in business, and like a midnight buffet in the middle of a windy sea storm, that restart date is a moveable feast. 

The two stocks got crushed in 2020, shedding 56% to 57% of their value last year. Norwegian Cruise Line and Carnival started to bounce back after the initial early pandemic sell-off, rising again later in 2020 as viable COVID-19-tackling vaccines began hitting the market. However, both stocks are now trading lower again in 2021. Reality is starting to sink in for cruising fans. If you're an investor wanting to take advantage of depressed prices in this market, which one do you buy? Do you go for the largest player in Carnival, or do you take a chance on the more nimble Norwegian Cruise Line? Let's put both out-of-favor investments to the test to see which one is the more seaworthy of the two for your portfolio.

Two couples playing the beach shore with a cruise ship in the background.

Image source: Getty Images.

Taking the "r" out of Norway

It's going to be a long time before people take a cruise vacation the way they used to, even if the three big publicly traded ship operators are sailing successfully in May. The experience itself will be different, and that will test the resolve of passengers. The financial returns will also be different for the operators, and that will test the resolve of investors. 

Cruise lines have spent the past year raising money through debt and stock sales. They have scaled back their fleets. The end result is financially bloated companies that know the turnaround will take some serious time. International travel restrictions aren't going to be lifted in the near future, and ports of call may need to be checked down when the voyages begin. 

Analysts don't see any of the companies turning a profit until the springtime quarter of 2022, and that could prove optimistic if there are more canceled sailings as 2021 plays out. It will take a couple of years after that before Carnival and Norwegian Cruise Line have a shot at returning to their peak 2018 and 2019 profit levels. 

Bulls will argue that the stocks have been hit hard, but the same can't said about enterprise value with all of the financing that the industry had to undergo to make it through this painful lull. Carnival's enterprise value right now is essentially where it was at the end of fiscal 2019 despite a stock that has plummeted more than 50% in that time. Norwegian Cruise Line's enterprise value has only contracted by 10% since the start of last year. Valuations -- not stock charts -- matter.

If this sounds like tough love in a piece where you expected one stock to be good but the other great, my apologies. Norwegian Cruise Line and Carnival are riskier bets than their low stock prices suggest. Carnival gets the nod here, but largely as the lesser of two evils.

A passenger looking out to the ocean from a ship railing.

Image source: Getty Images.

Life is a Carnival 

As the industry leader Carnival has a much better chance of outlasting Norwegian Cruise Line in a shakeout. Under warmer waters, one could argue that Norwegian would be bought out by one of its two larger peers at a premium, but no player is interested in expanding its fleet right now. Consolidation will come after the capitulation. 

Carnival has the scalability that will be critical in keeping costs in check. It also paid a quarterly dividend until early last year. The payouts aren't returning for a couple of years, but at least returning money to shareholders in the form of distributions is in its DNA. Norwegian Cruise Line has never cut a dividend check.

In a bearish scenario, Carnival is the better cruise line stock because it holds its breath underwater longer. In a bullish scenario, Norwegian Cruise Line will survive, but Carnival is still the one better positioned to turn its business around sooner. Carnival wins in both scenarios. 

This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.