Shares of Carnival (CCL 2.79%) (CUK 3.14%), Royal Caribbean (RCL 3.60%), and Norwegian Cruise Line Holdings (NCLH 1.74%) all surged on Friday, with the stocks up 5.1%, 4.7%, and 5.3%, respectively, as of 1:07 p.m. ET.
Cruise stocks surged after Stifel analyst Steven Wieczynski declared 2022 was going to be the "Year of the Cruise!" No wonder the three top publicly traded cruise stocks surged on the back of that declaration.
For those who found the title of the analyst note exciting, the thesis may be a little bit of a letdown. Wieczynski basically sees 2022 cruise demand remaining strong, as most industry executives have already stated in recent analyst and media appearances. But with the delayed economic reopening thanks to the delta variant this summer and then omicron in November-December, cruise stocks came under pressure toward the end of 2021, giving back some gains from earlier in the year.
Given that cruises "massively underperformed" versus other reopening stocks last year, Wieczynski likes the setup for cruise stocks as top choices for investors playing the continued reopening in 2022. While he believes the ongoing omicron surge may cause some delays or noise around getting back to full speed, cruise lines should get back to somewhat normal operations through 2022 and eventually approach cash flow breakeven, he says. Specifically, Wieczynski named Royal Caribbean as his top pick for the year.
Posting positive revenue growth and fewer net losses would certainly be good for these cruise names in 2022, so I wouldn't be surprised to see them getting back toward their previous 52-week highs. Each of these stocks is down between 20% and 33% from those levels, so that could offer significant near-term upside versus other sectors that may be more fully priced. That's, of course, as long as there are no new variants -- a big if.
Still, I have a hard time recommending these names as compelling long-term investments beyond this near-term delayed reopening trade. All these companies took on massive amounts of debt, diluted their shareholders with equity offerings, and disposed of less-efficient ships to get through the pandemic. So even when they rebound to "normal," I wouldn't expect blockbuster results relative to 2019.
So while these stocks could very well rally in 2022, they may struggle to get back to all-time highs that are generally 100% or more higher than their current stock prices. While they may be decent short-term trades, given the uncertainty around the virus and their highly indebted balance sheets, these stocks are still somewhat risky and aren't terribly compelling long-term investments, in my opinion.