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Travel Shares: Risk Vs Return Assessment
Investors know that oil prices, terrorism, and corporate debt restructuring, things that really cannot be controlled, have a huge influence on the stock market. A lot of investors stay away from airline stocks and shares for this reason. They can't control one of their biggest expenses (fuel) and an act of terrorism can severely harm the market.
Why are travel stocks any better? Rising fuel expenses and Hurricane Katrina led to lower stock prices for companies like Carnival Corporation and Royal Caribbean Cruises Ltd. Those two cruise companies account for about 75 % of the cruise market, around the world.
When George Allen Smith IV, from Connecticut, vanished while on a Royal Caribbean cruise, the industry received lots of unfavorable press.
Surely, you will discover many negative aspects for cruise stocks, but some investors are bullish. First, there is no direct indication that the disappearing honeymooner out of Connecticut has wounded ticket costs. Values on these stocks also look good.
Carnival Corporation trades at 16 times estimated 2006 profits. Its historic range is ten to thirty times earnings. Royal Caribbean trades at fourteen times projected 2006 earnings. Its historic range is 5 to 24 times earnings. Growth potential is strong as only 4 percent of Americans have ever gone on a cruise.
When thinking about cruise shares, don't forget the potential for loss. A sharp rise in fuel prices or another terrorist attack would likely have an unfavorable effect on cruise shares.
If you are undecided about this investment, do you know how to short a stock? This may be a much better route for you, especially if you're suffering from corporate debt restructuring.
I think the risk exceeds the probable reward as I do not expect cruise lines to significantly outperform the broader market.
Travel Shares: Risk Vs Return Assessment
Investors know that oil prices and terrorism, things that really can't be controlled, have a large influence on the stock market. Many investors avoid airline stocks for this reason.
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