Best Stock to Buy Right Now: Carnival vs. Chewy

Key Points

• Carnival is a cruise giant and has made an extraordinary turnaround after tough early pandemic days.

• Chewy has established itself as a major player in the pet care market and has built a loyal customer base.

• 10 stocks we like better than Carnival Corp. ›

If you're interested in stocks that depend on the consumer, you have a wide range of choices, from travel and entertainment to e-commerce and food and beverages. And that's just to name a few.

Though certain economies may be more favorable than others for these types of companies, a quality consumer goods stock has what it takes to win over the long run, making it a great asset to buy and hold at any point in time.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Carnival (NYSE: CCL) (NYSE: CUK), the world's biggest cruise operator, and Chewy (NYSE: CHWY), an e-commerce pet supplies giant, fit the bill. Both of these companies have seen revenue climb in recent times and offer investors a strong long-term outlook. But, if you could buy only one today, which one should you choose? Let's find out.

Image source: Getty Images.

The case for Carnival

Carnival had it rough a few years ago. The early days of the pandemic drove its operations to a halt, and as a result, the company built up a huge wall of debt just to stay afloat (excuse the pun).

But this cruising leader has made a great deal of progress since then. It has replaced older ships with new fuel-efficient vessels, put into place a strategy to boost on-board spending, and focused on repaying debt -- especially variable-rate borrowings.

All of this, along with general demand for cruises, have helped revenue to take off in recent quarters. In the latest period, for example, the company delivered record revenue of $6.3 billion and reached its highest-ever level of customer deposits at $8.5 billion.

Advanced bookings for cruises next year met the record levels of this year -- and at record high fares. So, travelers are eager to commit to a cruise vacation, even as prices go up.

These successes have helped Carnival beat the financial targets in its turnaround plan a year and a half earlier than expected: The adjusted return on invested capital has reached its highest level in more than 20 years.

On top of this, today's lower interest rates should make it easier to pay off debt, and lower rates are also supportive of the consumer. So, as prospective passengers feel less pressure on their wallets, they may plan more cruises.

The case for Chewy

The favorite company of pets -- from cats to iguanas -- may be Chewy, an online seller of food, treats, toys and other pet needs. And this has made their owners particularly loyal.

We see this through Autoship, a Chewy service that allows customers to choose an automatic reorder and shipping for their favorite products. Autoship accounts for 83% of overall sales, and what I like is that it offers investors visibility on future sales.

Chewy reached the milestone of profitability a few years ago and has seen revenue progressively advance, too. In the recent quarter, the company reported an increase of more than 8% in sales to $3.1 billion, and Autoship sales climbed 15%.

The company also has made an important move in recent years to broaden its revenue stream with the opening of Chewy veterinary clinics. This decision allows the company to introduce its e-commerce services to customers who might not have been familiar with them. So, over time, it can grow its revenue through vet visits and pet owners becoming customers of its e-commerce site.

The company's financial health is another positive point. It has no debt and ended the latest quarter with more than $590 million in cash. Though Chewy faces competition from big-box retailers and others in the space, Autoship's numbers show the company has been able build a loyal customer base -- an important factor that could help it win over the long term.

Which is the better buy?

As mentioned, both of these stocks could make a great addition to a consumer goods portfolio. When it comes to valuation, Carnival is less expensive, trading at 15 times forward earnings estimates compared with a 29 multiple for Chewy. But Carnival's valuation also has climbed from much lower levels earlier in the year.

CCL PE Ratio (Forward) data by YCharts; PE = prce to earnings.

Still, I would consider both players reasonably priced today, so valuation wouldn't be the element to push me toward one or the other.

What would sway me today -- and at any point in time -- is the question of debt. Lower interest rates are definitely good news for Carnival, but the company's high debt level remains a risk.

I like the fact that Chewy is debt free, and that, regardless of interest rates, makes it a stock I would favor. So, though I think both of these players could add value to a portfolio over the long run, if I could only buy one right now, I'd go for Chewy.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.