With a record amount of the 48 contiguous states covered in snow – nearly 60%! – the idea of leaving the cold winter behind for a warm cruise sounds appealing.
Truth is, it’s been appealing for a while now. The cruise industry roared back after the devastating COVID shutdowns.
Consumers booked a ton of trips last year, and stocks of cruise lines shot higher. Royal Caribbean (RCL) was the clear winner with its 160% surge, ahead of Carnival’s (CCL) 130% rally and Norwegian Cruise Line’s (NCLH) 61% pop.
Royal Caribbean is in the news now as it is exactly one week away from launching the world’s largest cruise ship – Icon of the Seas. The massive vessel holds up to 7,600 passengers and 2,350 crew members… so you can set sail with 10,000 of your closest friends.
Source: Royal Caribbean
The first voyages on the newest wonder ship are expensive, but that didn’t deter passengers, as early bookings were strong.
In fact, projections are that 2024 will be a record year for the entire industry. Bookings for 2024 itineraries have outpaced pre-COVID levels, and the Cruise Lines International Association estimates that 35.7 million passengers will set sail this year – 6% more than “the good old days” in 2019.
That’s a nice tailwind for stocks. But is it enough to keep them moving higher?
After all, it would be nice to pay for an expensive cruise vacation with money made from the stocks.
Let’s see if that’s possible, according to what the data tells us about these three cruise captains…
Royal Caribbean (RCL)
Source: TradeSmith Finance and MAPsignals.com
Royal Caribbean sports a Quantum Score of 67.2. That’s the overall rating given by my Quantum Edge system. I generally like to buy stocks with the score between 70 and 85, so RCL is good but a little shy of the optimum zone.
Its Technical Score of 70.6 is also good. Shares are trading near 12- and 52-week highs, and they are above key moving averages I monitor. One drawback is that my system hasn’t picked up a Big Money buy signal in more than a month. That’s not disastrous, but it’s worth noting.
RCL’s Fundamental Score of 62.5 is higher than its counterparts but still a little weaker than I like. One-year sales and earnings growth are strong, as you would expect given the industry’s recovery, but a negative profit margin (-24.4%) and very high debt (more than 9X equity) are red flags.
I usually avoid stocks with Fundamental Scores in the low 60s anyway. The technicals fluctuate with the price, but the fundamentals are a more consistent gauge of business strength and longer-term price direction. Less-than-ideal fundamentals are at least a reason for caution, and poor fundamentals are a dealbreaker.
However, the opposite setup can be intriguing – a high Fundamental Score but low Technical Score. That kind of divergence doesn’t usually last, and it can tip us off to good buying opportunities as the technicals strengthen to more closely match the fundamentals. I’ll share more about this in future Power Trends.
Carnival Cruise Lines (CCL)
Carnival has lower Quantum Score of 60.3, so it’s less attractive than RCL… and low enough that I wouldn’t buy it.
The fundamentals rate the same as RCL at 62.5. Again, sales and earnings have grown nicely as the industry recovered, but growth is expected to slow – understandably. There is also speculation that the industry might operate near capacity much of this year. That’s great, but this is one industry where growth can have physical limits.
Source: MAPsignals.com
CCL’s technicals score 58.8, which is so-so, and reflects the 8% pullback so far in 2024. It was actually the biggest gainer of the three in November and December, rallying 53%. My system picking up four Big Money buy signals those two months, but the last one was back on Dec. 7.
Norwegian Cruise Lines (NCLH)
Source: TradeSmith Finance and MAPsignals.com
Norwegian Cruise Lines is a definite no go with a too-low Quantum Score of 48.3.
NCLH’s fundamentals and technicals are the weakest of the three stocks at 54.2 and 44.1, respectively. Shares have gotten hit here at the start 2024, falling 12% in the last three weeks – significantly more than the 7% drop in CCL and 3% slide in RCL.
Better Moneymaking Opportunities Elsewhere
While the booking trend for cruises is clearly positive, the outlook for stocks is less certain. They had big runs already, and their scores are not strong enough to interest me. Big Money has quieted down in all three over the last month, with my system detecting no unusual buying (or selling).
That’s not to say shares won’t go higher, but the statistical likelihood of making money isn’t high enough. I count on a 70% win probability based on my system, and these companies fall short of that based on the data.
If you really want to own a cruise stock, RCL is clearly the strongest candidate. But honestly, there are better opportunities in other areas the market – where you can find stocks firing on all cylinders with strong fundamentals, technicals, and Big Money inflows.
Semiconductors, for example. A new revolution is afoot with rapidly advancing technology driven by the Internet of Things, AI, the cloud, and Big Data. This revolution requires next-generation semiconductors, and demand has skyrocketed as the chips get better and better.
My latest recommendation in TradeSmith Investment Report is a leader in the chip industry. Its strong across the board with a Quantum Score of 79.3, and the fundamentals and technicals equally robust at 82.4 and 75. That’s the Quantum Edge trifecta that gives you the highest odds of cruising to big money.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
