The Best Stocks to Invest in Cruise Lines

By Markets Fool.com


Royal Caribbean Cruise Line's massive ship completed last year, Quantum of the Seas, heads to
Shanghai this summer, where it will serve the Chinese market as its home port. Photo: RoyalCaribbean.com

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According to travel industry group Cruise Lines International Association, the number of cruise passengers worldwide is expected to reach a record 23 million in 2015, continuing what has been a period of growth in the cruise industry. The group expects that altogether cruise lines have invested about $4 billion to bring 22 new cruise shipsonline this year.

The bulk of that huge investment is coming from the biggest names in the industry, such as Royal Caribbean,Carnival Corporation , andNorwegian Cruise Lines Holdings. However, there are some interesting up-and-coming companies making a splash now.

One new competitor that could be a major threat to these companies is Virgin. That's right, Richard Branson is putting the Virgin name on yet another industry, and announced last December that his company is teaming up with Bain Capital to start building two cruise ships to start a Virgin Cruise brand (though a date for first sail is yet to be released).

There are other entertainment companies with their feet in these waters as well. Disney has cruise ships as part of its overall parks and resorts segment. Yet Disney has only four ships (as well as a private island in the Bahamas that serves as an exclusive port of call for Disney's cruise ships), so while this company is certainly impressive, it's only a small fish compared to Carnival's 24 ships.

Yet even with Virgin, Disney, and others floating around, the three main companies controlling this industry still look to be the best ways to jump in on the growth the cruise industry continues to see.

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Breaking down the cruise industry

Carnival is the largest of the major cruise line companies, with 24 ships (compared to 22 for Royal Caribbean and just 13 for Norwegian) as well as the largest market cap ($37 billion). Carnival is the parent company of various cruise brands in nearly every part of the world under names including Carnival Cruise Lines, Holland America, Princess Cruises, Seabourn, Costa Cruises, and more. One way Carnival has made major gains lately in that it's leading the industry in fuel efficiency. The company uses both oil price hedging contracts as well as other energy-saving measures that, mixed with lower oil prices, seem to be a major way Carnival adds to its bottom line. Carnival also offers the best dividend of the bunch with a 2.1% yield and has a P/E of about 28.

Norwegian is the smallest of these these three both by number of ships and market cap ($12.7 billion), but could have some interesting growth prospects ahead. Norwegian announced a deal last year to buy another cruise company, Prestige Cruises, which owns Oceania and Regent brand cruises. Together, Norwegian could have an great growth trajectory to capture a larger part of this growing market. While Norwegian does have this interesting development, it's the least attractive of the three from a fundamental investment standpoint with a P/E of 43 and no dividend.

  • Royal Caribbean Cruises

Royal Caribbean could be the best of these three companies for investors looking for both growth and fundamentals. With a market cap of $17 billion, Royal Caribbean is the cheapest of these stocks by P/E, at just 21. While its dividend yield is lower than Carnival's at 1.5%, the company might have bigger growth potential and its current price is just 12 times expected 2016 earnings.

One way the company is hoping to continue growing aggressively is its cruise operations in Asia, particularly China, where the major increase in middle-class citizens and discretionary income has helped boost the leisure travel economy. Cruises around Southeast Asia are growing in popularity where the vast number of islands, amazing beaches, and many different countries make for great cruise routes just like in the Caribbean area.

In its 2014 annual report, Royal Caribbean noted, "Our capacity in Asia continues to surge with 53% growth in 2015 on top of 22% growth in 2014. Investments in the region will continue to expand in order to ensure we maintain our position in the market."

Other companies are also pushing to increase the number of cruise ships offered to the Chinese market, but Royal Caribbean seems to be resonating the most with the Chinese market. RCL was named "Best Cruise Operator" by Travel Weekly Chinafor the seventh year in a row, the company announced last month.

RoyalCaribbeanevencommitted its newQuantum of the Seasship, which looks to be one of the most impressive inthe industry, tothe Chinese market.Whether its for its Chinesegrowth prospects, or its betterfundamentals, Royal Caribbean looks to bethe best stock to invest inthe cruiseindustry.

The article The Best Stocks to Invest in Cruise Lines originally appeared on Fool.com.

Bradley Seth McNew owns shares of Walt Disneyand Apple. The Motley Fool recommends Walt Disneyand Apple. The Motley Fool owns shares of Walt Disneyand Apple. 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.