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Cabot Undervalued Stocks Advisor Special Bulletin

Ongoing problems in China’s travel industry are concerning me enough that I am moving one of our stocks from Strong Buy to Hold.

Royal Caribbean Cruises (RCL) moves from Strong Buy to Hold

Royal Caribbean Cruises (RCL – yield 2.0%) Ongoing problems in China’s travel industry are concerning me enough that I am moving RCL from Strong Buy to Hold. A while back, I reported that Chinese cruise pricing has been faltering and there’s industry overcapacity in that region.

The newest development is that China has banned group tourism to South Korea after March 15, due to its opposition to South Korea’s development of the THAAD missile defense system. South Korea and Japan are the two major destinations for Royal Caribbean’s China-based cruises. In addition, North Korea has sent test missiles toward the Sea of Japan. This problem is not yet reflected in earnings estimates or valuation, which remain steady and strong.

RCL has traded steadily in the mid-90s for five weeks, which is actually a good sign that we’ll see a near-term price increase toward medium-term price resistance at 102. However, the recent political and military news could change the direction of the share price in the near-term.

So basically, we’re either going to see the stock climb to 102, or we’re going to see the market embrace the China news and push the share price down. My suggestion is that shareholders use stop-loss orders at 93.75, to mitigate the risk in this investment scenario. Please don’t ignore my suggestion. It will be easy enough to find other undervalued growth stocks if the bearish case plays out. Hold.