4 Top Cruise and Casino Picks for the Rest of 2015 and Into 2016

By Lee Jackson Updated May 29, 12:18PM EDT · Published May 29, 10:05AM EDT

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As we approach the halfway point in the year, many of the top firms we cover at 24/7 Wall St. are readjusting and making some tweaks to their lists of top stock ideas for this year. A new report, Stifel analysts stay with some of the top ideas they started the year with and remain positive that strong consumer demand can drive some of these top stocks to buy.

The Stifel team remains upbeat on the three cruise line operators and a top casino operator, to which more and more firms on Wall Street are warming up. With consumers feeling better about the economy, and gas prices at the pump continuing to be much lower than this time last year, spending could continue to jump in consumer discretionary sector leaders.

Carnival

Carnival Corp. (NYSE: CCL) is the largest cruise company in the world, with a portfolio of cruise brands in North America, Europe, Australia and Asia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, Ibero Cruises, P&O Cruises (Australia) and P&O Cruises (UK). The company used zero cost collars on Brent crude to hedge oil pricing, and many see Carnival continuing to make big strides in energy consumption reduction. A 10% drop in oil price can equal $0.26 per share in earnings.

With the busy summer cruise season starting soon, this may be an outstanding stock to add to growth portfolios.

Carnival shareholders are paid a very solid 2.15% dividend. The Stifel price target for the stock is $55, and the Thomson/First Call consensus price target is $52.06. Shares closed Thursday at $47.15.

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MGM Resorts

This old-school company combines a very strong presence in Las Vegas and growing clout in Macau. MGM Resorts International (NYSE: MGM) may be poised to perhaps break out after years of so-so trading. While still burdened with high debt, at least some of that debt has been refinanced at lower levels. The Stifel team and other Wall Street analysts find MGM to have among the most favorable risk reward, given the combination of exposure to improving trends on the Las Vegas Strip and the continuing growth in the mass market segment in Macau in the near term, as well as steady balance sheet improvements and its development pipeline in the medium term.

While the Macau business fell off dramatically in the last half of 2014, MGM is not as dependent on it for overall revenue. The new casino in Cotai could open as soon as this time next year, and the Stifel analysts see solid EBITDA growth for the company. They also think that, on a valuation basis, the stock is flat-out cheap at 10.5 times 2016 EBITDA.

Stifel has a $27 price target, and the consensus target is lower at $25.14. The stock closed Thursday at $20.19 per share.

Norwegian Cruise Line

The company reported very solid first-quarter earnings and could be poised for a very profitable balance of 2015. Norwegian Cruise Line Holdings Inc. (NASDAQ: NCLH) announced last year an agreement to acquire Prestige Cruises, the parent company of Oceania Cruises and Regent Seven Seas Cruises. The combination of the Norwegian, Oceania Cruises and Regent brands immediately creates an industry-leading cruise operator with an unmatched growth trajectory and a portfolio of products that span across the key market segments of the cruise industry.

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The Stifel team is very positive on the synergies related to the Prestige acquisition. They also note that the potential for positive guidance revisions, coupled with an outsized long-term earnings per share growth opportunity, could help the stock to trade higher.

While the Stifel price target is $65, the consensus objective is down at $59.42. The stock closed Thursday at $54.75.

Royal Caribbean Cruises

This company is well liked on Wall Street and recently caught an upgrade to Overweight at JPMorgan. Royal Caribbean Cruises Ltd. (NYSE: RCL) operates cruisers under the Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, CDF Croisières de France and TUI Cruises brand names. Many on Wall Street believe that Royal Caribbean stands to gain during 2015 and 2016 from its new ship introductions in the high-growth markets of the Asia Pacific and China, which are also more profitable regions for the company.

The Stifel analysts feel that at current pricing the stock is undervalued. Trading at a very cheap 12 times calendar year 2016 estimated earnings per share, despite the analysts estimated three-year compounded annual growth rate of almost 28%, there could be solid upside potential.

Royal Caribbean shareholders are paid a 1.7% dividend. The Stifel price target is a whopping $103, and the consensus is much lower at $83.81. Shares closed the day Thursday at $76.32.

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These stocks offer investors looking for a way to play the consumer discretionary sector an excellent route. With an aging population cruising the high seas more and more, and gambling never going out of style, they make good sense for growth accounts with some risk tolerance.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.