Steady seas for Norwegian Cruise Lines

This recent IPO offers investors a new way to invest in the cruise industry.

By TheStockAdvisors Mar 6, 2013 11:55AM
Cruise ship Keith Wood CorbisBy Mike Cintolo, Cabot Top Ten Trader

It's not exactly high tide for the cruise industry in the wake of Carnival's epic ship failure a couple of weeks ago.

But the fact remains that the industry as a whole remains in a steady growth mode as the U.S. economy gradually advances, and newly-public Norwegian Cruise Lines (NCLH) is set to take advantage.

The company is one of the big three (Carnival (CCL) and Royal Caribbean (RCL) are the others), with 11 current ships that can carry just over 26,000 passengers combined.

But the best is yet to come. The company will take delivery of one new ship each of the next three years (starting this April), and each of these ships is huge, carrying a whopping 4,000 passengers or more!

All told, then, the company's total capacity is set to increase by nearly 50% during the next three years, so if the vacation industry remains relatively healthy, and as travelers tend to shy away from Carnival after a couple of mishaps in recent years, business should boom.

Indeed, after three years of slow recovery along with the entire industry, Norwegian's revenue growth is expected to accelerate (up 14% this year, 20% next) while earnings take off (up 50% this year and another huge gain in 2014).

It's not revolutionary, but Norwegian appears to have a couple of major catalysts that should propel business higher, which seems likely to attract more big investors.

NCLH just came public in mid-January so there's not much to interpret on the chart. What we can say is that the stock opened well above its offering price and then marched persistently higher for a few weeks, reaching a high of nearly $32 before backing off.

Now, clearly, NCLH is still getting its sea legs (couldn't resist) and only trades about 500,000 shares per day, but we like the potential as investors build positions. We think you can start a small position on a dip below $30.

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