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Travel Stocks: Risk Versus Profit Assessment
Investors know that oil prices, terrorism, and corporate debt restructuring, areas that actually cannot be controlled, have a big influence on the stock market. Many investors avoid airline shares for that reason. They can't control one of their greatest expenses (gas) and an act of terrorism can severely damage the industry.
Why are cruise stocks any better? Rising fuel expenses along with Hurricane Katrina led to lower stock prices for businesses like Carnival Corporation as well as Royal Caribbean Cruises Ltd. Those two cruise lines account for about 75 percent of the cruise industry, globally.
When George Allen Smith IV, out of Connecticut, vanished while on a Royal Caribbean cruise, the market received a great deal of unfavorable publicity.
Certainly, you will find many downsides for cruise stocks and shares, but some investors are bullish. First, there isn't any direct sign that the disappearing honeymooner from Connecticut has hurt ticket prices. Values on these stocks and shares also look good.
Carnival Corporation trades at 16 times projected '06 profits. Its historic range is 10 to 30 times earnings. Royal Caribbean trades at 14 times projected '06 earnings. Its historic range is 5 to 24 times earnings. Growth potential is solid as only 4 % of Americans have ever gone on a cruise.
When considering cruise stocks, remember the potential risks. A sharp boost in fuel prices or another terrorist assault would most likely have an unfavorable impact on cruise stocks.
If you're unclear about this investment, do you know how to short a stock? This could be a much better route for you, particularly if you are suffering from corporate debt restructuring.
In my opinion the risk outweighs the possible reward as I do not anticipate cruise lines to significantly outperform the broader market.
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