Both Dow Jones industry average and S&P500 In August, the indices ran out of steam. After a month’s rally, both popular market indexes are falling just as quickly on recession fears as the Federal Reserve says it intends to maintain a restrictive stance on inflation.
Consumers will be squeezed while the central bank has pledged to cool down the economy, which will cause even more hardship for people. Amid such grim scenarios, it’s difficult to determine which stocks might be able to buck this downtrend. As such, many investors could choose to just sit on the sidelines. However, that could be a mistake.
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A popular investment adage says, “It’s not about timing the market, it’s your time in the market that counts.” This idea is never truer than it is now. Looking back over the past 20 years, the stock market has averaged about a 10% return, but if you missed the 10 best days in the market, your returns would have nearly halved to just 5.3% per year.
For that reason, picking stocks that have the ability to thrive — not just survive — any potential downturn is critical to your future wealth. That’s why I’m also thinking about cruise companies carnival (CKL -1.16%) — a growth stock that I believe will outperform the market for years to come — is worth considering today.
The carnival carries a heavy anchor
Carnival performs significantly worse than the broad market index. In fact, Carnival stock is down 58% year to date, compared to the S&P 500’s 18% drop.
The cruise industry has yet to recover from the devastating blow of the coronavirus pandemic, and Carnival has only managed to stem its business from sinking so far. There’s still work to be done for Carnival when it plans to hit the high seas again.
One element stalling cruise line operators like Carnival is the heavy debt they have had to take on just to remain solvent during the extended period of inactivity. Many shops were allowed to reopen after a few months of forced closures, but cruise ships were banned from sailing for over a year.
Carnival hung over $35 billion in debt at the end of the second quarter, or nearly four times the $9 billion it had at the end of the same period in 2019. Norwegian cruise line now has $12 billion in debt, down from less than $6 billion three years ago. Royal Caribbean cruises has nearly $18 billion in debt, compared to nearly $9 billion in 2019.
Though cruise ships are sailing again, boats aren’t quite as crowded as they used to be as protocols were put in place to meet the strict requirements of the Centers for Disease Control and Prevention. Demand has increased and bookings are strong, but revenue is 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
The cruise industry and especially the carnival is all the more hopeful.
As the largest cruise line, Carnival is the guiding star on the high seas, and it’s starting to cruise again — albeit slowly — as business returns. Though revenue declined last quarter compared to three years ago, it increased 50% compared to the first quarter. In addition, the occupancy rate was 69% compared to 54% three months earlier.
It also just reported that its same-day bookings “almost doubled” in 2019 after it scrapped pre-cruise testing requirements and no longer required unvaccinated passengers to show proof of an exemption.
there Has Demand for cruises has steadily increased, and with more than 90% of its capacity back at full capacity, Carnival should see an equally steady return to normal.
Full steam ahead
Though Carnival has more debt than it did before the pandemic, it also has ample assets to survive and ultimately thrive in the future. Cash and cash equivalents total $7.1 billion compared to $1.2 billion in 2019.
It’s true that Carnival is still posting losses, but they’re down significantly year-over-year. With the company forecasting annual revenue growth of over 6% for the next four years, Carnival should return to profitability in 2023. A year later, earnings per share are expected to rise 43%.
With its stock battered by the strain placed on it and the rest of the cruise industry, Carnival is a growth stock that will dwarf the market for years to come.
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