Now is the time to buy cruise shares, says a cruise industry review released by Lazard Frères & Co., which notes that although shares have been up and down in the past few weeks with only a 1 percent increase in the last month, the relatively defensive performance of the cruise/leisure segment is encouraging.
The report states cruise shares are sensitive to any data showing a slowdown in consumer spending in 2000. In September, a decrease in the Consumer Confidence Index was enough to cause a 7-8 percent drop in Carnival (CCL)
and Royal Caribbean shares. However, a closer look showed a tendency of the CCI
to soften in autumn months. At 134.2, the CCI is 6 percent higher than a year ago, actually suggesting stronger confidence among consumers.
According to Lazard Frères, the stage has been set for a first quarter rally in consumer stocks driven by a reversal in what appears to be a temporary widening of borrowing spreads, caused by Y2K concerns that should subside by the end of the first quarter. If borrowing spreads start to narrow in the early months of 2000, a rally in consumer spending is likely, and will probably be led by cruise shares.
Since fourth quarter cruise bookings are usually seasonally slower, and cruise lines often discount year-end sailings, the fourth quarter is a difficult period to get a consistent indication of pricing or demand in the coming year. This year, the report says, the influence of millennium travel clouds the picture even further. The first firm indication of cruise shares performance for the new year, according to Lazard Frères, will not be until late January to early February. Generally, though, the first quarter has been favorable for cruise stocks, reinforcing beliefs that the shares are a timely buy.