The New Year has just begun. At this time, you may be busy with various personal and professional tasks. Holiday planning may not find a place among them. However, I believe investing in travel operators’ shares, specifically Carnival (LSE: CCL) should make the list, especially in January.
Let’s see why.
Sainsbury’s Bank Travel Insurance recently conducted a study that showed 76% of respondents intend to go on a holiday and may spend an average £757 each on every trip. Further, January will be the most popular month to book holidays for the year with 6.4 million people intending to lock in their travel plans.
40% of those surveyed would be heading overseas to beach destinations – a holiday that is expected to cost them £1,039 per person. Another piece of information, which I’ll highlight in a moment, caught my eye and had me assessing the prospects for Carnival.
2019 in review
2019 was a bit of a dampener for Carnival’s share price; it declined by 3%. The world’s largest leisure travel company did not have a great ending to the year when two of its ships – Carnival Glory and Carnival Legend – crashed into each other in Mexico in late December.
Though the price decline may seem negative, the stock was able to overcome a significant deficit seen earlier in the year. By mid-October, the share price had plummeted by over 18%. Thus, from that point, it gained 19% and reduced its losses. There were other positive developments for Carnival as well. The company, which operates nine cruise lines, won the ‘Best New Cruise Ship’ award for 2019 for its Italy-built Carnival Panorama by a near landslide.
What makes me bullish on Carnival
The company has several things to look forward to in 2020. It is launching four new cruise ships in the year. Its line-up will see Iona for P&O Cruises UK, Enchanted Princess for Princess Cruises and Costa Firenze for Italian brand Costa Cruises.
Mardi Gras, the fourth of the ships to take to the seas this year, has already been voted as the ‘Most Anticipated New Cruise Ship of 2020.’ Carnival’s largest ship ever won this honour at the sixth annual Cruise Ship Awards. Further, the ship received this award even though its delivery has been delayed, resulting into its first revenue sailing being pushed to November from August earlier.
Carnival also has plans for basing more ships in Europe. For perspective, there were no ships based in the continent in the summer of 2019. Gustavo Antorcha, the company’s Chief Operating Officer, speaking on the topic, said “You will see Europe becoming more important.”
And finally, I’ll go back to the Sainsbury’s survey I had cited earlier. Its results show that cruises would be the most expensive type of holiday in 2020 and people are willing to spend around £1,650 per person.
There can be choppy waters for the company due to a rise in fuel costs because of the US-Iran conflict. However, a sub-£35 price level, a P/E level of nine to 10 times of its forecast earnings and a dividend yield of 4.4%, in addition to the factors outlined in the article, make this share a great buy for me this January.
