Norwegian Cruise Line best bet among cruise stocks: Traders

State Department and the Centers for Disease Control (CDC) issued advisories over the weekend suggesting Americans avoid boarding cruises, given the heightened risk of contracting COVID-19 on the ships. On the surface, the discount in Norwegian Cruise Line shares today seems like a good buying opportunity. Shares trade at 7.8 times 2020 earnings estimates and that's a great multiple for most consumer discretionary stocks. But this is also an industry where customers could stay away a lot longer than they will at other businesses because of the nature of cruises.

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Here's a look at what stock owners with 100 shares or more can expect when sailing, listed in terms of onboard credit value. Carnival, Royal Caribbean, and NCL have lost roughly two-thirds of their peak value. The seas are rough, but both stocks are now trading for roughly five times forward earnings. Royal Caribbean (RCL 2.15%) is distinguished as being one of the most innovative cruise lines. Its ships are packed with state-of-the-art amenities, including virtual balconies, massive water slides, skydiving at sea, and even Broadway shows.

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Investors in search of safe stocks may want to stay away from this industry right now. All three companies are now trading for roughly five times forward earnings, but those profit targets continue to drift lower as Wall Street catches up to the financial hits that are coming. The chunky payouts at Carnival and Royal Caribbean are nice -- NCL has never paid distributions since its 2013 IPO -- but naturally they are susceptible to the industry's financial health. Carnival and Royal Caribbean did suspend their dividends during the 2008 global subprime crisis, and this could potentially play out even worse for the industry in the near term. It's not a surprise to see the largest cruise line hold up the best, even though Carnival is the parent company behind the maligned Diamond Princess and Grand Princess vessels that remain quarantined with passengers.

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If you want to invest in cruise line stocks, you have several attractive options. Disney stock is publicly traded, but the company discontinued all investor benefits in 2000. There are horror stories of folks quarantined on ships with hundreds of confirmed coronavirus cases, including a handful of casualties. And just when you thought the news couldn't get any worse for the reeling industry, the U.S.

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This cruise line is still known for its reasonable prices and ability to offer a fun time for everyone. Carnival cruises are popular among families and groups of friends alike, including younger generations. Carnival excels in customer satisfaction, winning the 2021 USA Today Readers' Choice Awards for best ocean cruise line. While many travel companies were affected by the pandemic, cruise lines were some of the most severely hurt. Cruise ships were docked for more than a year, causing their owners to miss out on billions of dollars in earnings.

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Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. "If you look at Norwegian versus its peers, it's in the best technical shape. Currently, it's only down 10% from its recent highs versus its peers, which are down closer to 15%," he said. "So, we've lost less and we're actually starting to climb back faster. So, I think if we are ready to dip our toe into the water, Norwegian is the cruise liner to buy here."

What Are the Benefits of Owning Cruise Line Stocks?

If you shop the deals and frequently get OBCs on your own, then the cruise line's stock perk is less of a benefit after all. Even when cruise lines have built some momentum, news of potential travel restrictions caused by the delta and omicron variants have sent their stock prices tumbling. The biggest cruise companies own several cruise lines, with each of the major cruise companies taking a unique approach to keeping its customers loyal.

Good Investment?

I think we could be in for a rough year in 2020 for cruise operators and would be cautious buying the dip today. Nevertheless, cruise lines tend to have a passionate customer base with plenty of repeat passengers. Over the long term, cruise line stocks may be a good value investment provided you are comfortable with some volatility. Considering how much the pandemic continues to affect cruise lines, investing in them is relatively risky. The cruise line business has high operating costs, and many cruise companies have lost a lot of money.

You will be required to submit a copy of your brokerage statement, usually two to three weeks before sailing. The name on the statement must match the name of the person sailing, so no sharing among friends, unless you plan to jointly own the stock. There are exceptions in the fine print for cases of jointly owned stocks, but the restriction of having 100 shares per cabin still applies. It is good to note, however, that even with other OBCs on your account, you might be eligible for the portion of the stockholder benefit credit that exceeds the other credit.

Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. As with all stock purchases, you do take a risk that the cruise line stocks will not perform as well in the future as perhaps they did in the past, so make sure you understand all the fine print before you invest. While you can purchase as many or as few shares as you'd like, all the cruise lines that offer investor benefits require a minimum of 100 shares to be eligible for the credit. You are looking at a substantial initial investment -- typically thousands of dollars, depending on which parent company you invest in and the cruise line's stock price at the time of purchase. We've got the rundown of the benefits offered per cruise line and how to get the stocks, plus how and when to snag the credit.

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Since all passengers must be vaccinated, Norwegian is able to offer mask-free cruises with no social distancing requirements. Cruises on all brands operated by Norwegian Cruise Line Holdings, Ltd., including Norwegian, Oceania and Regent Seven Seas are eligible for the benefit. All Carnival brands -- which include Carnival, Princess, Holland America, Seabourn, Cunard, Costa, Aida and P&O -- earn benefits, though the amounts are adjusted slightly for European and Australian brands. If there's one industry that should be worried about the coronavirus it's the cruise business. Thousands of people confined to a relatively small space is a recipe for spreading disease and, as a result, customers may just decide to stay home. When governments start suggesting that a cautious approach is the right one that's also not a good sign.

Cruise ships require a buoyant economy with happy consumers excited about hitting the open waters, and that's not the course that's being charted today. Even if the world sidesteps a global recession at the other end of these viral headwinds, it's going to take the cruise industry a bit longer to recover than other travel markets. However, with the stocks at multi-year lows, patient and risk-tolerant investors may find these companies to be a lot more tempting as stocks than near-term getaway considerations. Seasoned cruise travelers know when to book future sailings to get the best rates, and investors now have that same opportunity to get in on three quality players at historically low prices. If you invest $4,000 and typically take four cruises per year, each one with $100 in onboard credit (i.e., free spending money), your investment "earns" $400 or 10 percent per year. In most cases, the investor OBC is superseded by other special offer credits, so no stacking.

Explore how you can make money from others' adventures, including the frontier of space travel. Carnival, Royal Caribbean, and NCL are trading 62%, 64%, and 67%, respectively, off their 52-week highs. Carnival's highs were back in March of last year, but its two smaller rivals actually peaked less than two months ago. In short, NCL stock would have to triple from here just to get back to where it was in mid-January.

Carnival's sheer size creates operating and pricing advantages in good and bad times. It also only helps that Carnival packs the highest yield of the three out-of-favor cruise stocks. Lindblad Expeditions (LIND 0.42%) isn't your typical cruise company, and that could make it a safer play than most cruise line stocks. While others carry thousands of passengers per ship, Lindblad specializes in smaller, more expensive adventure cruises. The maximum capacity for these cruises is typically between 48 and 148 passengers, depending on the trip. That being said, cruise line stocks are still a long-term play that could have some rough seas ahead.

Carnival's sales forecasts are promising, with bookings for 2022 representing growth over 2019's performance. The cruise line has also started opening earlier reservations for future cruises, which led to a $630 million increase in guest deposits as of the third quarter of 2021. However, cruise line companies are reporting strong sales for upcoming cruises, which indicates a rebound in demand.