This Is Why Royal Caribbean Is the Only Major Cruise Line Stock I Own

Until a few weeks ago, I was more than happy to own shares in all three of the major cruise line stocks. Royal Caribbean (NYSE: RCL) was my largest of the three positions, followed by Carnival (NYSE: CCL) and then Norwegian Cruise Line (NYSE: NCLH). Today I am only a shareholder of Royal Caribbean.

This doesn't mean I don't dip my portfolio's feet in other sea-tackling players in this space. Disney (NYSE: DIS) is rapidly expanding its fleet of family-friendly ships. Viking (NYSE: VIK) is the undisputed leader in river cruises. Disney and Viking are among my 10 largest personal holdings. However, when it comes to the three largest publicly traded cruise line operators, I pared back my positions earlier this summer. I recently went on to cash out of Carnival and NCL entirely. Let's go over a couple of reasons Royal Caribbean is the only major cruise line stock I own right now.

Image source: Getty Images.

1. Business is starting to slow down

The tide hasn't turned on the cruise line industry, but the process has slowed. The latest quarter shows year-over-year revenue growth of 3%, 5%, and 5% for Carnival, Royal Caribbean, and NCL, respectively. Those are the weakest top-line moves since cruise line operators restarted operations coming out of the pandemic.

Carnival, operating on a different fiscal year than its peers, reported a month earlier. Revenue landed just ahead of Wall Street forecasts. Royal Caribbean and NCL have fallen short of top-line targets in back-to-back weeks.

There are silver linings to go with the blue ocean waters. All three cruise lines beat market expectations on the bottom line. All three would go on to raise their adjusted earnings guidance for the current fiscal year. Bookings generally remain strong, with folks willing to pay more for a sailing than they ever have in the past. This just seems to be the end of the easy growth. The big jumps in revenue, occupancy, and net yields are transitioning into historically sleepy growth. That doesn't make this the end of the bullish thesis for the industry. It's just the narrative is transitioning from heady to steady.

2. Following the leader

There are fates worse than steady-as-she-goes. The cracks in the fundamentals aren't there, but there are more things to watch out for these days. Consumer sentiment is softening. The government shutdown that's nixing flights out of major airports this month is also a pressure point, as most cruise line passengers are flying in to their port of embarkation.

It also didn't help that this summer's programming on streaming services was filled with new documentaries about Carnival's poop cruise and a passenger disappearance on a Royal Caribbean ship 27 years ago. Throw in last month's streaming premiere of The Woman in Cabin 10 -- a fictional movie about a woman vanishing from a luxury yacht -- and the industry could be another high-profile release or two from having its own Blackfish battle when it comes to passenger safety and experience perceptions.

The valuations are kind now. NCL, Carnival, and Royal Caribbean are trading for seven, 11, and 14 times forward earnings, respectively. Why would I go for the most expensive of the three stocks in this scenario? It all boils down to winners that continue to win.

Image source YCharts.

3. Some premiums are worth paying

Royal Caribbean has more than quadrupled over the past five years. Carnival has doubled. NCL is trading only marginally higher. The disparity will shock anyone who assumes that a rising recovery tide lifts all cruise ship stocks. However, Royal Caribbean is different.

It was the first of the three cruise lines to turn profitable in 2023. It was the first to resume dividend distributions in 2024, and it has already raised that quarterly payout twice. Royal Caribbean is on its third consecutive year of delivering record revenue and operating profits.

Royal Caribbean commands a greater market cap than the larger Carnival because it has earned its racing stripes. Royal Caribbean consistently posts stronger growth and higher margins than Carnival and NCL. Value investors may flock to the cheaper rivals, but growth investors know that the stock's superior stock chart isn't a fluke.

I won't stay away from Carnival and NCL forever. I'm just going to wait until the climate for travel and tourism stocks improve. I might also be tempted if the valuations get so low that patience will reward the risks I would be taking. I'm fine with just Royal Caribbean -- and Disney and Viking -- for now. However, I never stop looking into the ocean for opportunity.

Rick Munarriz has positions in Royal Caribbean Cruises, Viking, and Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Carnival Corp. and Viking. The Motley Fool has a disclosure policy.