Investing in cruise lines can be tricky, especially right now. There are so many variables in play that in can lead to confusion. For instance, travelers might be hesitant to go on a cruise due to recent incidents. Then there's the discretionary income side of the story.
For those with high-skill jobs, the economy is booming right now, and discretionary income is up. For those looking for traditional work, it's not easy to find, and discretionary income is down. Therefore, it's difficult to determine which way the economy is actually heading. What we do know is that the ascent of the stock market is aiding the high-end consumer, at least to some degree.
The next issue with cruise lines, from an investing standpoint, is valuation. For instance, Royal Caribbean (NYSE:RCL) is trading at a whopping 131 times earnings, and Norwegian Cruise Line (NASDAQ:NCLH) is trading at 98 times earnings. Carnival (NYSE:CCL) is trading at 25 times earnings, which should make it more appealing, but the company's litany of safety issues has frightened investors and potential passengers.
Fighting off headwinds
Despite all these concerns, Royal Caribbean and Norwegian Cruise Line have seen their stock rise 28% and 22% year to date, respectively. Even Carnival's stock has held up relatively well, selling off just 1% over the same time frame. Carnival yields 2.80% and Royal Caribbean yields a similar 2.30%. Norwegian Cruise Line doesn't offer a dividend.
It has so far been established that the cruise lines are holding their own in a foggy economy. Going forward, there are several potential catalysts for future growth, which we'll take a look at. And there's one other cruise line that you might want to consider. This mystery company is trading at just 20 times earnings, it's a well-known brand, it's extremely diversified, and it yields 1.20%. Any guesses?
News & World Report's Best Cruises was recently published. The results were based on travel experts and everyday travelers. According to the study, the No. 1 Cruise Line for the Money: Royal Caribbean. This relates to Royal Caribbean offering high-quality experiences at affordable prices, which stems from the company's ability to offer low rates due to large ships and high volume.
One potential future growth catalyst for Royal Caribbean is Quantum of the Seas. The following question might seem a little off-topic, but it's not. Have you ever dreamed of skydiving? There's a pretty good chance that it has crossed your mind, but you don't want to do it because of safety concerns. What if you could go skydiving without any safety risks? This is the ideal compromise for adventure seekers. Quantum of the Seas (sails November 2014) and will offer RipCord by iFly, a virtual skydiving experience.
Quantum of the Seas will offer many other interesting amenities, and it will be followed up by Anthem of the Seas in Spring of 2015. This ship's features will include a live rock-n-roll music venue, bumper cars, roller skating, an adults-only solarium, FlowRider (surfing machine), a water park, rock climbing, and even aerialists.
Now, about that mystery company...
No. 2 for Best Cruise Line for the money
This is none other than Walt Disney (NYSE:DIS). The best thing about investing in Disney is that you're getting exposure to the cruise line industry without having to pay a premium, and given the company's broad diversification, iconic brand, and large market cap, it's relatively resilient to downturns in the economy.
I could list all the amenities for Disney Cruise Line, but all you really need to know is that Disney characters are on board. It also has educational kids clubs, theme parties, performances; and destinations include rainforests, volcanoes, local markets, and Castaway Cay (Disney's private island).
This all sounds like fun, but Disney Cruise Line is really all about relationship building. Your kids will be spending a lot of time with other kids, forming friendships. This will likely lead to you spending time with other parents, once again, forming friendships. This is a big selling point.
A simple catalyst
Norwegian Cruise Line is the hottest story in the industry right now. Investors are excited about the company's recent success and future fleet expansion. However, one important point is often overlooked.
Norwegian Cruise Line doesn't have a dress code or specific times for meals. Being on vacation is about feeling free, not being on a schedule, and Norwegian Cruise Line has perfected this notion. It's likely that more people will opt for what it has to offer.
The bottom line
If you're looking for growth, and you want to go with what's hot, then you might want to look into Norwegian Cruise Line, just be aware that it's very expensive. Therefore, it must continue to grow at a rapid pace in order to justify its valuation. Royal Caribbean also offers growth potential, but it's not growing as fast as Norwegian Cruise Line. If you prefer a safer and more diversified option, consider Disney as a solid all-around entertainment company.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.