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Are Royal Caribbean and Carnival Cruises a viable long term investment?

Are Royal Caribbean and Carnival Cruises a viable long term investment?

The global shutdown of the transportation and tourism industry has lead to some of the biggest Cruise lines across the globe halting operations until further notice. Subsequently, these Cruise line giants have lost almost 2/3 of their share value since February. Royal Caribbean (NYSE: RCL) and Carnival Corporation (NYSE: CCL) both share a market cap north of $5 billion, marking them the biggest contenders in the US. Now before we break down the fundamentals of both companies, you must remember we are currently in a health crisis NOT a financial crisis. On top of this, both companies hold a substantial amount of systematic risk in the current market environment (short term). Now this risk reaps reward however use caution in your best interest.

Here is the risk you are taking on when buying.

With all that risk, how big is the reward?

Now after a speil on risk, you will probably want to see the potential reward. The good news is that both companies are operators of incredible scale. It’s going to take more than just a 6 month ban on operations to take down such mammoth corporations. In fact, Wedbush analyst, James Hardiman states that after calculating a monthly cash burn of approx. $500 million a month, alongside a fresh cash injection – will give Carnival approx. 12-13 months of survival. This gives Carnival enough time to restructure their priorities and get back up and running once COVID-19 settles. Here are some pros that come with investing in either CCL or RCL.

Last thing I’d say is right now, the pros and cons do equate with each other. What matters now is what type of investor you are. If you like taking on risk for high yields like me, finding a sweet entry point will be the difference between you making double or triple your money. However, if the crisis continues to worsen it becomes harder to see the cruise liner industry surviving a 2-3 year long haul or recession.

Recent News on RCL and CCL

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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Tyger Fitzpatrick, Founder of YIG.