It's been a tough past three months for Carnival (CCL -0.66%) shareholders. The leisure cruise stock is trading down 25% from its early July high, falling on fears that economic weakness would upend the industry's budding recovery. That headwind also has been a problem for the shipping business.
Interested investors may want to take the plunge on Carnival, anyway. It looks like the economy's easing its way out of trouble and into better health. The market will follow that lead sooner or later -- and likely sooner than later.
Here's a rundown of the top three reasons to step into Carnival stock if a rekindling of the bull market is in the cards.
1. Smoother sailing is on the horizon
As veteran investors can attest, the stock market and the economy aren't synchronized. Economic data is backward-looking. The market is forward-looking, pricing in what's apt to take shape a few months to a couple of years in the future.
That's an important idea to understand in light of the recent upgrade of Carnival stock by Truist analyst Patrick Scholes. He believes that -- despite the current headwind -- Carnival's bookings and pricing trends will both take a clear turn for the better in 2024 and 2025.
And he's not the only bigger-picture optimist. Susquehanna analyst Christopher Stathoulopoulos also recently upgraded Carnival, suggesting that while the current fiscal year's outlook won't likely be upped, next year's results should prove the cruise line operator is on track to meet its lofty 2026 goals.
Don't be surprised to see this stock start performing better before we reach that point. A bull market, of course, would only bolster such a tailwind.
2. Analysts are willing to place bullish bets
It's not just Truist's Scholes and Susquehanna's Stathoulopoulos, either. Since late last month, Carnival stock has been upgraded twice, while three more pre-existing buy ratings were reiterated.
All analyst calls should be taken with a grain of salt. The business is tricky enough when they agree with the majority opinion. Making the wrong call on a stock is even more career-crimping when they're in the minority of the analyst crowd. And sometimes, analysts are just plain wrong.
It's noteworthy, however, to see this many analysts change or reiterate their bullish opinions when it would have been easy -- and risk-free -- to do nothing. They made a point of doing so, anyway.
That's particularly true of Truist's Patrick Scholes, who had downgraded Carnival shares to a sell just two months earlier. While he still acknowledges the same short-term concerns he voiced in July, he also recognizes the stock's 25% sell-off since then more than reflects all of its risks without reflecting enough of its longer-term reward.
Carnival stock is currently priced at around $14 per share, versus Scholes' price target of $17 and the consensus target of $18.79.
3. Demographics are working in Carnival's favor
Last but certainly not least, the expected reacceleration of demand for cruising in 2024 and 2025 is set to be hyper-fueled by demographics. Said more directly, the retiree crowd, who has both the time and money to purchase a cruise, is on the verge of population-leading growth.
Giving credit where it's due, Redburn Atlantic's analyst Alex Brignall connected the dots. He explains his recent upgrade of Carnival stock: "The cruise industry, with an average guest age of almost 50, will enjoy a turbocharged version of this demand strength as the U.S. over-65 population is set to grow at more than 2% per year until 2030, four times the overall population growth of the U.S."
You know this crowd as the baby boomers -- folks roughly between the ages of 60 and 80. Many of them are already retired or will be soon. They're more likely to be debt-free than other generations and in a better position to spend money on experiences while they still can.
Roughly two-thirds of them also own at least some stocks -- too much stock in many cases -- and collectively, they own more than half of the United States' publicly traded equities (much of them through mutual funds). If a bull market comes, they'll benefit the most, leaving them even wealthier than they are right now.
More reward than risk with Carnival stock
While the bigger-picture thesis is bullish, that doesn't necessarily mean Carnival stock's sell-off since early July has run its full course. This is a weak time of year for stock traders anyway, and the current economic environment is less than encouraging.
Inflation remains elevated and job growth is slowing. Economists expect the United States' gross domestic product (GDP) growth to slow to less than 2% for the third quarter and continue slowing next year. These are potential stumbling blocks for any stocks.
Comparing plausible risk to likely reward, however, the potential of a new bull market emerging soon bolsters the already-bullish case for stepping into Carnival stock now in the shadow of its summertime swoon.
The kicker: Analysts expect Carnival to swing back to a profit next year. That's sure to get the market's bullish attention.
