Both Dow Jones Industrial Average AND S&P 500 indices ended in August. After rising a month ago, both popular market indexes are falling just as quickly on recession fears as the Federal Reserve signals it intends to keep a tough stance on inflation.
Consumers are being squeezed as the central bank is committed to cooling the economy, which will result in even more hardship for people. Amidst such gloomy scenarios, it is difficult to determine which stocks might be able to buck this downward trend. As such, many investors may decide to simply sit on the sidelines. However, this may be a mistake.
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Popular investment wisdom that says “it’s not about timing the market, it’s your timing the market that counts.” This idea has never been more true than now. Looking back over the past 20 years, the stock market has returned an average of about 10%, but if you missed the 10 best days in the market, your returns would be cut in half to just 5.3% per year.
That’s why picking stocks that will be able to thrive—not just survive—any potential downturn is critical to your future wealth. This is also why I think the cruise line operator Carnival (CCL -1.16%) — a growth stock that I believe will beat the market for years to come — is worth considering today.
Carnival carries a heavy anchor
Carnival is doing much worse than the broad market index. In fact, Carnival stock is down 58% year-to-date, compared to the S&P 500’s 18% decline.
The cruise industry has yet to recover from the crushing blow of the coronavirus pandemic, and Carnival has so far only managed to stop its business from sinking. Carnival has a lot of work to do if it plans to sail the high seas again.
One element holding back cruise ship operators like Carnival is the heavy debt load they had to take on just to stay solvent during the extended period they were unable to operate. Many businesses were allowed to reopen after months of forced closures, but cruise ships were banned from sailing for more than a year.
Carnival had more than $35 billion in debt on its books at the end of the second quarter, or nearly four times the $9 billion it held at the end of the same period in 2019. Meanwhile, Norwegian Cruise Line it has $12 billion in debt now versus less than $6 billion three years ago. Royal Caribbean Cruises has almost $18 billion in debt compared to nearly $9 billion in 2019.
Although cruise ships are sailing again, the boats are not as full as before due to protocols adopted to meet Centers for Disease Control and Prevention restrictions. Demand is up and bookings are strong, but revenues are nowhere near pre-pandemic levels. Carnival, for example, reported $4.8 billion in revenue in 2019, but only $2.4 billion in the second quarter of this year.
Ready to set sail
However, this is all the more reason to be hopeful for the cruise industry and Carnival in particular.
As the largest cruise line, Carnival is the bellwether of the high seas, and it’s starting to sail again — albeit slowly — because business is coming back. Although revenue fell in the last quarter compared to three years ago, it was up 50% compared to the first quarter. Additionally, occupancy rates were at 69% versus 54% three months ago.
It also just reported that its bookings were “nearly double the level” for the same day in 2019 after it dropped pre-cruise testing requirements and no longer required unvaccinated passengers to show proof of an exemption.
there there are has been a steady increase in demand for cruise travel, and with more than 90% of its capacity sailing again, Carnival should see an equally steady return to normality.
Full steam ahead
Although Carnival has more debt than before the pandemic, it also has enough assets on hand to allow it to survive and eventually grow in the future. Cash and cash equivalents totaled $7.1 billion compared to $1.2 billion in 2019.
It is true that carnivals are still making losses, but they have narrowed significantly from a year ago. With the company forecasting revenue to grow over 6% per year for the next four years, Carnival should return to profitability in 2023. The year after that, earnings per share are projected to grow 43%.
With its stock decimated by the burden placed on it and the rest of the cruise industry, Carnival is a growth stock set to outshine the market in the years ahead.
