Summer is the season to travel and have fun, and many of the companies that help people do that are publicly traded. Among 14 “summer-fun” stocks is a hidden gem that I find particularly intriguing at this time.
Cruise lines
The three pure plays worth consideration are Carnival (CCL), Royal Caribbean (RCL) and Norwegian (NCLH) . (DIS) also has a major presence in the industry. Let us start by comparing the performance of these four stocks since the stock-market bottom of 2009.
Please click here for the chart .
It is easy to notice that Royal Caribbean has been the best performer with about a 532% gain. Whereas Carnival has shown only about 74% gain. Norwegian was an IPO in 2013 and has performed well, showing about 36% gain.
Carnival’s troubles are well known. When something is well known, it gets fully discounted in the stock price. A very recent short-term example that investors may relate to is my writing on May 1, 2014, “Most investors are better off by not selling in May and not going away…It is worth remembering that any phenomenon that is known well does not work well when it comes to generating profits.” The call was spot on as ‘sell in May’ did not work because it was already discounted in the market in April.
The same is true for Carnival. All of its troubles are well known. For this reason, at a time when the stock market is hitting an all-time high, astute investors looking for laggards with low risk may consider Carnival.
Going forward, Carnival is a perfect example of a strategy that has been very successful at The Arora Report. The strategy is to buy good stocks when they fall on bad news, the bad news is likely to have only a temporary effect, and with time, problems are likely to be fixed. Another example of this strategy that has been very successful is Walgreens /quotes/zigman/245520/delayed/quotes/nls/wag WAG -1.01% , previously published under the title “Trading Strategies: An evergreen strategy for unstable times.”
As the chart shows, Carnival has underperformed Royal Caribbean by about 468%. All of the problems with Carnival slowly being fixed. In my opinion, it’s only a matter of time before Carnival catches up with Royal Caribbean. In our analysis at The Arora Report, in due course, earnings estimates by analysts for Carnival will prove to be too pessimistic. This should result in a springboard for Carnival shares as earnings improve.
The question is “Should you buy Carnival now?” To answer this question, take a look at the second annotated chart of the stock.
Please click here for second annotated chart of Carnival .
Please note how The Arora Report implemented the strategy described above by issuing a buy signal on Carnival when it dipped on lousy earnings. Also note that Carnival is approaching the resistance zone. The resistance zone is to be respected. There is no way to call with certainty what will happen in the resistance zone. However, there are only three possibilities: the stock breaks out, the stock pulls back, or it becomes rangebound. If the stock breaks out, it will be an opportunity to start scaling in. If the stock pulls back into the buy zone, it will also be an opportunity to buy or add to the existing position.
