1 Stock Down 60% to Buy Right Now and Hold For the Next 5 Years

We are closing in on the end of 2025, and the S&P 500 is trading near record territory. Despite the bullish sentiment, not all businesses are close to reaching new all-time highs. And this could present investors with opportunities to buy the dip.

There's one consumer discretionary stock that's currently trading 60% below its peak (as of Oct. 20). Here's why it's a smart company to add to your portfolio and hold for the next five years.

Carnival keeps hitting fresh records with each passing quarter

Investors should take a closer look at Carnival (NYSE: CCL). The huge cruise line operator was decimated during the COVID-19 pandemic, as its operations were temporarily halted for safety purposes. It's no surprise that demand for cruise travel fell off a cliff for some time, which negatively impacted the company's revenue. Carnival was also forced to take on more debt.

We're more than five years past the onset of the health crisis. And it's been an impressive turnaround for this business. It seems that a quarter doesn't go by in which Carnival doesn't report records for key performance metrics.

During the fiscal 2025 third quarter (ended Aug. 31), the company registered year-over-year revenue growth of 3% to $8.2 billion, a record. The top-line gain, while smaller than in the years before, still indicates healthy demand for cruise travel among consumers. Carnival ended the quarter with a record $7.1 billion customer deposits. Net yields, a proxy for pricing power, also reached a record.

Despite the general sentiment of macro uncertainty, Carnival's success appears to be broad-based from a geographic perspective, not just dependent on the Caribbean, which is what most investors might assume. CEO Josh Weinstein said in an interview that demand is "off the charts" for Europe and Alaska, for example.

Carnival's operating income totaled $2.3 billion, translating to a stellar 27.9% margin. This was yet another record. Investors should pay close attention to profit trends in the years ahead. Wall Street consensus analyst estimates call for earnings per share to increase 28% between fiscal 2025 and fiscal 2027.

Carnival's success has allowed management to clean up the balance sheet. Carnival has refinanced some of its debt, ending last quarter with $26.5 billion in total debt. Bond ratings agencies are taking notice, upgrading the company's creditworthiness. These are all clearly encouraging signs.

The cruise line industry benefits from favorable long-term tailwinds

There's no denying that demand for cruise travel can shift with the economic winds. While it's certainly great to see that consumers want to take cruise trips in the face of economic uncertainty, there's a risk that a recession will seriously pressure demand. And this can crush Carnival's revenue momentum.

The Federal Reserve's more accommodative stance, with plans to cut interest rates, could help drive greater consumer spending. So, in the near term, it looks like Carnival could benefit from a macro tailwind.

The long-term picture is also bright. Cruise travel is bringing in younger customers. It's also drawing in first-time cruise-goers. This can expand the total addressable market. It also helps Carnival that cruise travel is viewed as providing a better value proposition than land-based alternatives. This all supports durable demand.

Investors can buy shares at a compelling valuation

Carnival shares might be selling for 60% below their all-time high, but they have skyrocketed 278% in the past three years. The company's impressive fundamental performance is getting the investment community's attention, which has supported more bullish sentiment.

But even after such a monumental rise, the valuation is compelling. The stock trades at a forward price-to-earnings ratio of 12. Investors should take advantage of the current setup and buy the dip on Carnival stock. This is a solid company to own for the next five years.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.