Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Line Investment Survey -- Ignore unavailable to you. Want to Upgrade?

To: KevRupert who wrote (20)	6/20/2000 11:01:00 PM
From: EL KABONG!!!	Respond to of 219

advalorem, I'll be running a spreadsheet on them this evening or tomorrow afternoon, so I'll talk about it then. KJC PS - Haven't been posting here because of the untimely passing of a cyber-friend here on SI (search topics on Edwarda).

To: KevRupert who wrote (20)	6/24/2000 6:11:00 AM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 219

advalorem, ccl & rcl are looking more interesting! Interesting indeed! Both stocks got clobbered this week, and now trade at or below new 52 week lows. If you missed it, CCL announced earnings on Tuesday(?). Earnings were in line with expectations (in fact, I think they beat expectations by a penny or two), but they warned of a slowdown for the second half of the year, and cautioned analysts to lower estimates. Analysts responded by slashing the rating of CCL, and just for good measure, slashed RCL as well. Both stocks plummeted on the news. Poor RCL didn't even get a chance to be heard yet. <g> Okay, the bad news first. CCL expects second half bookings to come in below established revenue growth rates. They are expanding their fleet, which means increasing debt in the face of decreasing revenues. And since interest rates are increasing, debt repayment would not be as easy as it has in the recent past. RCL is likely in the same boat (pun intended), though they haven't reported yet that I know of. Analysts think that the industry will have an over capacity with all of the new ships that CCL and RCL will make available. The over capacity would lead to discounting prices, which would pressure margins, and ultimately lower earnings. And fuel costs continue to rise, putting additional pressure on earnings. Lastly, analysts fear that with the downturn in the stock market, many people might be canceling trips as the so called "wealth effect" feeling ebbs from the potential customer base. And now the good news. Fuel costs are currently running at about 5% of all expenses, so even if costs there doubled, with no increased revenues, you're still only looking at 10% for fuel costs. A few years ago, fuel costs were running at about 25% of total costs. Both companies are purchasing new ships, which will increase debt load and interest payments, but with the additional capacity, they'll be able to build "brand loyalty", very important in the cruise industry. Newer ships will also bring in more revenues as they come on line. And newer ships are far more cost efficient to operate and maintain. Both RCL and CCL continue to claim that they'll be able to fill their ships without significant discounting. (The proof is in the pudding. Wait and see.) Building ships requires an enormous lead time, but as these newer ships come on line, the aging baby boomer population will be entering the ideal age for cruising. Expectations are that this group alone will supply sufficient customers to be able to fill all ships to near capacity without significant discounting. So, balancing the good news with the bad news, has the market treated these two stocks unfairly, and perhaps punished the prices too much? I'm not at all sure of the answer. I think that there is a high potential that we haven't seen a bottom yet in either stock. On the other hand, the worst may be behind them now. Extreme caution should be exercised before contemplating a purchase here. How long until we would have confidence in eps expectations? Good question. I have no answer. Maybe a quarter or two? As for me, I think I may try to catch a bottom here by underbidding the price with a limit order. If the order is filled fine. If not, no problem. I'm bottom fishing anyway, and when the company fortunes change, I can always get in at a decent price. I might put in a limit order at about $15 or $16 for CCL and maybe about $14 or $15 for RCL. Another point to consider is that both companies currently pay a decent dividend. So taking the dividend into consideration, the stocks look undervalued to me despite all of the bad news. But that's just my opinion. I'm willing to risk a little "dead" money in exchange for a quick double or triple in a few years, and the dividends will just serve to "lower" my entry costs. Of course, there's no guarantees that the dividends will not be reduced or eliminated, but I may be willing to take that chance. Have to mull this one over this weekend. KJC