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If you're a value hound, you need to take a look at

Royal Caribbean

(RCL) - Get Report

.

Hold your horses, folks. I know what you're thinking. Why invest in a cruise operator right now? I mean, people are still afraid to travel, and consumer confidence is slumping. Fourth-quarter earnings, set for release Tuesday morning, are expected to show a 22-cent loss.

But this stock is cheap and the travel business, while still in a deep funk in the aftermath of Sept. 11, isn't going away. In fact, Royal Caribbean has said some bookings already have returned to preattack levels. Combine that with a planned merger that will make Royal the industry leader and you have a must-buy here.

The simplest reason to buy this operator of cruise ships is that economic bad news is already in the stock. The shares, 37% off their 52-week high of $30.25, are trading at just 14.5 times 2001 earnings of $1.30 a share; that's darn cheap.

In addition, the company trades at just 0.9 times book value and 1.1 times sales. Those figures put Royal at a sharp discount to its biggest competitor,

Carnival

(CCL) - Get Report

, which trades at 2.4 times book value and 3.5 times sales.

But the bigger picture is even more impressive. Remember that demographics are still in the company's favor: Americans are traveling in record numbers. Since 1970, the number of cruise-line passengers has increased 9.1% annually, to 6.9 million in 2000. Experts agree that this rate of growth only will accelerate as the nation's population increases and ages.

And although Carnival has tried to break up Royal's merger with Princess Cruises, it looks as if Royal will prevail. The deal, which should close this summer, will unseat Carnival as the world's largest cruise operator, allowing Royal to generate in excess of $100 million in annualized synergies and cost savings.

That deal will boost growth at an already fast-growing company. Analysts expect Royal Caribbean earnings to rise 11% annually over the next five years. As a bonus, the stock carries a dividend yield of 2.89%.

Bottom line is that Royal could easily trade into the mid-$20s over the next 12 to 24 months, up from $18.85 Monday. Maybe it's time to cruise the high seas for some of the value driftwood.

For similar stock picks, or more information about value stocks in general, be sure to sign up for a two-week trial for my Era Of Value newsletter.

In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Curtis welcomes your

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