Travel Stocks: Risk Versus Reward Assessment

Investors know that oil prices, terrorism, and corporate debt restructuring, areas that truly can't be controlled, have a substantial influence on the stock market. Lots of investors avoid airline stocks and shares because of this. They can't control one of their biggest expenses (fuel) and an act of terrorism can seriously harm the market.

Why are cruise stocks any better? Rising fuel expenses as well as Hurricane Katrina led to lower stock prices for businesses like Carnival Corporation and Royal Caribbean Cruises Ltd. These two cruise companies account for about 75 % of the cruise industry, around the world.

When George Allen Smith IV, out of Connecticut, vanished while on a Royal Caribbean cruise, the industry received lots of negative press.

Surely, there are many negative aspects for cruise stocks and shares, but some investors are bullish. First, there isn't any direct indicator that the vanishing honeymooner out of Connecticut has damaged ticket prices. Values on these stocks and shares also look good.

Carnival Corporation trades at 16 times estimated 2006 earnings. Its historic range is ten to thirty times earnings. Royal Caribbean trades at 14 times projected '06 earnings. Its historic range is 5 to 24 times earnings. Growth potential is solid as only 4 percent of Americans have ever taken a cruise.

When thinking about cruise stocks and shares, remember the potential for loss. A sharp surge in fuel prices or another terrorist assault would likely have an adverse influence on cruise stocks and shares.

If you're undecided about this investment, do you know how to short a stock? This might be a much better route for you, particularly if you're experiencing corporate debt restructuring.

I believe the risk exceeds the possible reward as I do not anticipate cruise lines to significantly outperform the broader market.

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