Billionaire Activist Investors Just Started to Rattle the Cages of These Two Stocks. Is It Time to Buy?
Key Points
Elliott Management is looking to shake up the management team at Norwegian Cruise Line and sees the potential for a huge turnaround.
Starboard Value wants TripAdvisor to sell itself.
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The travel industry was recently the target of two activist investors. Activist investors typically look to help turn around struggling businesses where they think there have been missteps and where problems can be fixed. As such, investing alongside these investors can also be rewarding. Let's look at two travel stocks that have drawn the attention of activist investors.
Norwegian Cruise Line
Famed activist investor Paul Singer of Elliott Management recently took a 10% stake in Norwegian Cruise Line (NYSE: NCLH) and sent a letter to the cruise operator's board. Singer called out the company's poor execution and cost controls while saying that the company had one of the best valuation-recreation opportunities he sees in the markets today.
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Elliott is requesting a new board with more travel experience and wants to install a stronger CEO and executive team. The company just appointed a new CEO this month, who previously was the CEO of Subway Restaurants.
The hedge fund manager said the company's strategy has been inconsistent and not aligned with industry trends and customer preferences, despite the cruise ship operator having a modern fleet and ownership of a large private island destination. He said that, given Norwegian's quality fleet and current industry tailwinds, the company's mistakes are easily fixable and that the stock has solid upside from here. He projects that the company could achieve more than $4 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2027.
This is an interesting idea. Norwegian is the smallest of the big three public cruise operators, with a focus more on the luxury market. This tends to lead to a higher staff-to-guest ratio, so it may indeed be able to reduce some of its staff and reduce costs. Debt is an issue, but given the industry tailwinds, this can continue to be reduced, making the stock an attractive deleveraging story.
Image source: Getty Images.
TripAdvisor
Norwegian wasn't the only travel stock to become the target of an activist investor recently. Starboard Value took a 9% position in TripAdvisor (NASDAQ: TRIP) and immediately chastised the travel platform for its slow adoption of artificial intelligence (AI) solutions. The activist fund said this is causing the company to squander its lead in the space. It will nominate its own board of directors at the company's upcoming annual meeting and said TripAdvisor should put itself up for sale.
TripAdvisor has always had an intriguing user base and platform, but the company has tried a lot of ways to better monetize its platform over the years without a ton of success. As a result, the stock has lost about three-quarters of its value over the past five years, and it's down more than 80% over the past decade.
With just a $1.2 billion market cap, the company could potentially find a buyer who tries to improve the platform and better monetize it. The stock is very cheap, trading at a 7.5 times forward P/E, so it could be worth investing alongside Starboard as it looks to get the company sold. That said, the risk of TripAdvisor being disrupted by AI is certainly a large potential risk at this point, so the company getting acquired is not a slam dunk.
Should you buy stock in Norwegian Cruise Line right now?
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tripadvisor. The Motley Fool has a disclosure policy.
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