Royal Caribbean (RCL): Cruise for Profits

It seems like cruise companies are still making money despite offering cheap vacation cruise packages.

Royal Caribbean (RCL) cruise ship"Royal Caribbean (RCL) has nothing new or revolutionary going for it, but it's one of the strongest stocks in the market," says Mike Cintolo.

The editor of Cabot Top Ten Weekly explains, "With its nearly 40 cruise ships, the stock is a a pure-play on discretionary leisure spending, and its earnings can rise rapidly during improving times.

"And that's what investors are discounting now -- earnings fell from $2.82 per share in 2007 to 75 cents last year, but look set to get back to $2 per share this year and challenge new-high ground in 2011!

"Of course, not all the company's fortunes are tied to the industry, which is rebounding as consumers slowly open up their wallets again.

"Management, for instance, has been squeezing costs out of the system, helping earnings to bounce back quickly even as revenues rise at a slower rate.

"But the big idea here is that, with an upswing in the entire sector, Royal Caribbean's bottom line could far outpace expectations in the quarters to come (last quarter's figure topped estimates by 55%).

"RCL isn't as strong as many stocks from a bigger-picture perspective; shares are still 8% below their old peak of 38 from the spring.

"However, the stock has been one of the better performers since the market took off on September 1, and it gained steam late last month after one of its peers reported a terrific quarter.

"There's still some overhead above 35, but we think you buy a little around here, and then see how the stock reacts to earnings which are due out around November 1."

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