Luxury Cruise Stocks: Risk Vs Return Analysis
Investors know that oil costs, terrorism, and corporate debt restructuring, areas that seriously cannot be controlled, have a substantial influence on the stock market. Many investors steer clear of airline stocks and shares because of this. They can't regulate one of their greatest expenses (gas) and an act of terrorism can severely harm the industry.
Why are luxury cruise stocks any better? Rising fuel expenses as well as Hurricane Katrina led to lower stock rates for businesses like Carnival Corporation as well as Royal Caribbean Cruises Ltd. Those two cruise companies account for about 75 percent of the cruise market, around the world.
When George Allen Smith IV, from Connecticut, vanished when on a Royal Caribbean cruise, the market received loads of unfavorable press.
Certainly, you can find many negative aspects for cruise stocks, but some investors are bullish. Initially, there isn't any direct signal that the disappearing honeymooner out of Connecticut has hurt ticket costs. Values on these stocks also look good.
Carnival Corporation trades at sixteen times projected '06 profits. Its historic range is ten to 30 times earnings. Royal Caribbean trades at fourteen times projected 2006 earnings. Its historic range is 5 to twenty-four times earnings. Growth potential is solid as only 4 % of Americans have ever gone on a cruise.
When thinking about cruise stocks, don't forget the potential for loss. A sharp increase in fuel prices or an additional terrorist assault would most likely have an unfavorable influence on cruise stocks.
If you are undecided about this investment, do you know how to short a stock? This might be a much better path for you, particularly if you are suffering from corporate debt restructuring.
I believe the risk outweighs the achievable reward as I do not expect cruise lines to significantly outperform the broader market.
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