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Royal Caribbean, Carnival, Norwegian Stocks: Cruising to Recovery?

Real Money contributor Jonathan Heller thinks one cruise line stock is really poised to rise, but he’s still cautious about the travel sector’s prospects.

Few sectors, if any, have been harder hit by the global pandemic than that of the travel and cruise companies. But as the world reopens, some of these stocks are generating tremendous enthusiasm.

Although some countries have kept their ban on cruise ships operating, one of the major cruise lines, Carnival Corp.  (CCL) - Get Carnival Corporation Report, has said it plans to be operating at 75% by the end of 2021. This news sent stocks in the cruise ship industry higher, with Carnival, Norwegian Cruise Line Holdings  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report and Royal Caribbean Cruises  (RCL) - Get Royal Caribbean Cruises Ltd. Report all benefiting.

Out of these three cruise companies, Royal Caribbean has risen to the top, Jonathan Heller writes in a recent Real Money column. “There's little doubt in my mind that Royal Caribbean has come out of the pandemic in the best shape of the three,” he says.

Read all of Heller’s insights and investing ideas on Real Money in Royal Caribbean Survives the Cruise Line Storm the Best but Still Is Battered: Other cruise operators suffered more damage to their capital structures due to the pandemic but none appeal to this value investor.

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But before investors become overly optimistic, Heller said he remains cautious as the global pandemic continues to impact leisure travel and these companies have increased their debt load and diluted their shares by offering more of them to investors.

“However, there seems to be plenty of optimism that the cruise industry will return somewhat quickly to its glory days,” he wrote. “That rosy picture seems a bit premature as there are still a lot of unknowns and much that could go wrong.”

Royal Caribbean faces fewer issues compared to its competitors, but still accrued additional debt of $5 billion, which is less than the $12 billion that Carnival added, but higher than the $2.1 billion that Norwegian Cruise Line debt load.

Investors need to be cautious and focus on how soon the cruise industry will be up and running and “the condition of each of the major players, how long they can continue without raising more capital if rosy forecasts for the industry are not realistic and how each will be affected by moves made to stay solvent during the pandemic,” Heller writes. “I remain cautious overall.”

Get more trading strategies and investing insights from the contributors on Real Money.