Strong Demand Points to More Upside for this Travel Play

Consumer spending data has been mixed over the past year. One of the biggest disconnects is the slowdown in traditional spending while discretionary spending has increased.

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  • In the discretionary space, travel demand has remained strong. Consumers still want to travel, and are keeping airplanes full and hotel rooms booked. They’re also showing a strong demand for other niches in the travel and tourism market as well.

    One beneficiary is the cruise industry. Bookings remain strong, and companies like Royal Caribbean Cruises (RCL) are trending higher.

    The trend has more room to play out, especially as the winter months ease. That could help shares recover from their recent dip, and move on to make new 52-week highs.

    Although RCL is already up 60 percent over the past year, shares are still on the inexpensive side at 18 times earnings. With energy prices near their 52-week lows, RCL should continue to see higher profits thanks to lower energy costs.

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  • Plus, strong bookings should be good to keep profit margins trending higher, past their current level of 12 percent.

    Action to take: Investors may like shares here as a momentum play higher in the months ahead. At present, RCL does not pay a dividend.

    For traders, the September $140 calls, last going for about $8.85, could see mid-double-digit returns, especially on strong demand through the summer.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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