Better Cruise Stock Buy: Carnival or a 50/50 Split of Royal Caribbean and Norwegian Cruise Line?

When evaluating traditional cruise line stocks, the market hierarchy has remained consistent: Carnival Corp. (CCL) leads in revenue, fleet size, and passenger volume, but Royal Caribbean (RCL) holds the largest market capitalization at $75 billion, compared to Carnival's $36 billion. Norwegian Cruise Line (NCLH) trails with a smaller $7 billion market cap and enterprise value of $23 billion.

This scenario prompts a thought experiment: should an investor allocate their entire funds to Carnival or split them equally between Royal Caribbean and Norwegian? To decide, let's examine the performance of these three stocks. While Royal Caribbean has tripled its value over the past five years compared to Carnival's 28% growth, NCL has struggled and is in decline.

Notably, Royal Caribbean was the first to recover post-pandemic and resume dividend payouts. However, the industry faced challenges due to geopolitical tensions, rising oil prices, and macroeconomic concerns. In the third quarter, both Carnival and Royal Caribbean exceeded expectations, while NCL reported mixed results. Historically, an investment of $2,000 in Carnival five years ago would yield $2,560, whereas a combined $1,000 investment in Royal Caribbean and NCL would result in $4,160.

For this year, the numbers are less certain: $2,000 in Carnival would be $1,820, and a 50/50 split in Royal Caribbean and NCL would amount to $1,770. Carnival's current valuation of 11 times next year's projected earnings is attractive, while Royal Caribbean is trading at a lower 15 times earnings, and NCL at a lower 11 times. Despite this, Royal Caribbean's growth potential and strong recovery make it a compelling choice, even with the additional risk of investing in NCL. Cruise line stocks are becoming more viable, and a balanced portfolio could be a prudent choice.