Put Your Portfolio on 'Cruise Control'

Few industries are as demographically favored as the cruise industry. More Americans reach retirement age every month and they represent a steadily growing target market. The trend is likely to last for decades to come. All three publically traded major players have been prospering. Somewhat surprisingly, each of them are available at lower than their own historically normal valuations. A quick glance at their five-year numbers confirms the story. There has been significant growth across all key metrics. Carnival and Royal Caribbean have been public for a long time. Norwegian Cruise Lines Holdings shares debuted in 2013. Over the past decade CCL and RCL typically traded for about 16 times current year's earnings. Buy and hold provided good results. Going long these stocks when market conditions offered discounts and selling when enthusiasm ran high has been an even better trading strategy. Carnival's average P/E since 2010 has run 16.4x. A regression-to-the-mean valuation would justify a target price in the mid-$72s by year end. CCL's current yield of 2.83% is well above its typical payout of about 2.47%. Royal Caribbean's present valuation appears quite attractive. With a consensus estimate for $8.77 in 2018 EPS RCL trades for just 12.9x this year's earnings. Its 2.12% yield is a bit above normal. A rebound to simply RCL's average P/E since 2010 supports a 12-month goal north of $113 per share. As with CCL, buying Royal Caribbean when it sells at a discount (green-starred below) has been a winning play. RCL's three should have sold moments (red-starred) each occurred when its multiple was too high and its yield was sub-par. Norwegian Cruise Lines actually showed stronger growth since 2013 than either CCL or RCL. The stock did less well than the others, though, because it came public at a very high valuation. Near its early 2013 lows NCLH fetched about 49x forward earnings. P/E compression has masked the company's stellar results. Management is working to raise the stock's profile and get more investors' interest. The shares recently moved their listing from NASDAQ to the NYSE. At its Apr. 11, $20.80, closing quote NCLH was offered for just 11.3x this year's consensus estimate. That is the lowest ever P/E for this fine company. The previous best buying opportunity in the summer of 2016 saw the shares surge from $34.20 to north of $61 in about 12-months. A rebound to the industry average 16x multiple would justify a move to over $73 by year's end. The table below shows the backward looking five year returns on CCL, RCL and NCLH. Since 2013, it would have been much better to have owned RCL than its competitors. Does that mean the same scenario will play out going forward? I doubt it. Here are my own projections for the next 12-months. They assume each of these stocks goes back to sixteen times current EPS. From today's price points NCLH appears to offer by far the best upside. Royal Caribbean looks second best. CCL could provide about 13% - 14% of total return in the coming year. These companies use diesel powered ships but the wind is clearly at their backs. You won't go wrong with any of these names. Lesser-known and under-followed Norwegian Cruise Line Holdings is primed for a catch up move from a truly bargained-priced starting point. Get on board soon to avoid missing the boat.

Put Your Portfolio on 'Cruise Control'

Demographics favor the three big players in the cruising industry.

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