Cabot Value Investor Issue: May 1, 2025

Cruise Control: How the Cruise Industry Is Leading the Post-Covid Travel Comeback

Cruises became a four-letter word during Covid, as mass outbreaks (and casualties) on multiple cruise ships caused the entire industry to essentially shut down. There were 800 confirmed cases on three cruise ships alone, including passengers and crew. Various times in 2020, 2021, even 2022, I remember hearing people utter the phrase, “I’m never taking a cruise again.” Indeed, few people were. The number of cruise passengers worldwide dropped from 27.5 million in 2019 to just over 7 million in 2020 – and most of those came in the first few months of the year, before the entire cruise industry essentially halted operations starting in April 2020.

Cruises didn’t resume until June 2021, but enthusiasm had significantly dampened. Most cruises were only half full for most of the year, and passenger traffic came in at 13.9 million – roughly half pre-Covid levels. 2022 was better, with occupancy rates picking up to 78% and 20.4 million people going on cruises that year, though Covid was still lingering and disrupting daily life, at least in the early part of the year (my parents had a Viking cruise cancelled around that time). But by 2023, cruises were officially back, reporting a record 31.7 million passengers. Last year, the number ballooned to 35.7 million worldwide. More than half of them – 18.2 million – were Americans, a number that’s expected to top 19 million this year.

After grinding to a halt for two years during Covid, the global travel industry is alive and well as people want to get out and see the world again, making up for lost time after being cooped up for so long. You see it among airlines, which reported record travel numbers last year. But that was the first year airline passenger numbers had topped pre-Covid totals; cruises reached a record in 2023, and last year were 30% higher than their 2019 totals. Airline passenger traffic was just 3.8% above pre-Covid levels last year, according to the International Air Transport Association (IATA).

So, just three years after being essentially non-existent, cruises have suddenly become the most popular form of travel. Yet, despite cruise traffic being 30% higher than it was at its pre-Covid peak, share prices for most publicly traded cruise line companies are much lower. And that brings me to today’s new addition to the Cabot Value Investor portfolio…

New Recommendation

Carnival Corporation & plc. (CCL)

Carnival is one of the two largest cruise companies in the world, along with Royal Caribbean (RCL), as the two combine to own 63% of the market. The difference between them? While RCL shares reached new all-time highs earlier this year (though they’re down more than 27% since), CCL shares have never come close to getting back near pre-Covid levels, when the stock peaked in the low 70s in 2018. CCL currently trades at 17.75 a share and hasn’t gotten any higher than 28 (this January). So the stock trades at a quarter of its all-time highs at a time when sales are higher than ever and profits are back in the black after four straight years of losses. Revenues were up 15.9% in 2024 to $25 billion and are estimated to top $26 billion (+4.25%) this year, with EPS expanding by 30% to $1.84. And those estimates might be conservative: In the first quarter, Carnival blew EPS expectations out of the water, with 13 cents far outpacing the 2-cent estimate. Revenue of $5.81 billion also easily beat estimates, by $70 million, and marked a $400 million improvement from the same quarter a year ago. Occupancy was 103%, with 3.2 million passengers, and the Miami-based company raised its full-year guidance, bumping up its adjusted net income expectations by $185 million to $2.49 billion.

The stock is down more than 28% year to date, including a 6% pullback yesterday after first-quarter U.S. GDP declined by 0.3% as tariff impacts start to reveal themselves. It’s possible tariffs and escalating fears of an economic slowdown will convince people to think twice about booking their next cruise vacation. But again: CCL stock is already trading at a quarter of its 2018 highs, at a time when revenues are 20% higher than their pre-Covid highs. The stock trades at a mere 10x forward earnings estimates and 1.04x sales. This is a great buy-low candidate even if sales begin to slow a bit in the coming quarters.

So let’s add CCL to our thinned-out Buy Low Opportunities Portfolio with a price target of 28 – where the stock was just three months ago. That gives it 57% upside from our current price. I think that’s a very realistic goal, even amidst all the tariff uncertainty. BUY

Note to new subscribers: You can find additional commentary on past earnings reports and other news on recommended companies in prior editions and weekly updates of the Cabot Value Investor on the Cabot website.

Send questions and comments to chris@cabotwealth.com.

Also, please join me and my colleague Brad Simmerman on our weekly investment podcast, Cabot Street Check. You can find it wherever you get your podcasts, or you can watch us on the Cabot Wealth Network YouTube channel.

This Week’s Portfolio Changes

None

Last Week’s Portfolio Changes

None

Upcoming Earnings Reports

Friday, May 2 – The Cigna Group (CI)

Tuesday, May 6 – Energy Transfer LP (ET)

Growth & Income Portfolio

Growth & Income Portfolio stocks are generally higher-quality, larger-cap companies that have fallen out of favor. They usually have some combination of attractive earnings growth and an above-average dividend yield. Risk levels tend to be relatively moderate, with reasonable debt levels and modest share valuations.

Aegon Ltd. (AEG) is a mid-cap ($10 billion) Dutch life insurance and financial services company that’s nearly 180 years old. Its largest and perhaps most recognizable business is Transamerica, a leading provider of life insurance, retirement and investment solutions in the U.S. With more than 10 million customers, Transamerica targets America’s “middle market,” and its wholly owned insurance agency World Financial Group – which boasts 86,000 independent insurance agents – helps facilitate the insurance part of Transamerica’s business plan.

Aegon also does business in the United Kingdom, as Aegon U.K. is a leading investment platform with 3.7 million customers and is trying to become the U.K.’s leading digital savings and retirement platform. Aegon Asset Management is the company’s global asset management wing. And Transamerica Life Bermuda is the name for Aegon’s life insurance business in Asia. The company has customers all over the globe, with major hubs in Spain, Portugal, France, Brazil and China.

Aegon’s sales peaked in 2019, when the company raked in a record $68.7 billion as the pre-Covid market hit a crescendo. Covid hurt ($42 billion in 2020), and the 2022 bear market hurt even worse (Aegon actually lost $4 billion that year), but the company has since rebounded, with 2023 revenues coming in at $32 billion. While revenues mostly held steady in 2024, the company became profitable again, reporting $797 million in net profits in the second half of 2024 alone, with free cash flow of $414 million. This year, the company expects its operating capital generation (the amount of capital a company generates from its ongoing business operations, excluding one-time events) to improve 46% and its cost of equity to shrink. Meanwhile, Aegon is returning its extra cash to shareholders in droves, announcing a $1.25 billion share repurchase program over the next three years, and upping its dividend payout by 19% last year, resulting in a very generous current dividend yield of 6.3%.

AEG shares trade at 7.8x forward earnings estimates, 0.59x sales and have an enterprise value/revenue ratio of just 0.5 – cheap on all fronts, and with the growth picture improving. AEG is far from sexy, but it has a history of churning out steady returns.

AEG shares were flat this week on no news. The stock is up nearly 8% year to date and has recovered nicely since dipping to the mid-5s in early April. This boring but reliable stock is now back in the black for us and has 25% upside to our 8.00 price target. BUY

Bank of America (BAC) is perhaps the most resilient large U.S. bank. It bounced back from the Great Recession of 2007-08, when BAC shares lost 93% of their value. The stock has rebounded after losing half its value from the 2022 bear market and subsequent implosion of Silicon Valley and Signature banks in March 2023. Now, the bank has never been more profitable or generated more revenue. And at 10.6x forward earnings estimates, it’s cheap.

Warren Buffett has long seen value in BofA; it’s still the third-largest position in the Berkshire Hathaway portfolio, despite some recent trimming. So, we’re not breaking any new ground here. But sometimes the obvious choice is the right one. The combination of growth, value (BAC also trades at just 1.05x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

Last month’s promising first-quarter earnings report continues to act as a tailwind for BAC shares, up another 1% this week. Bank of America beat Q1 EPS estimates by 10% (90 cents vs. 82 cents expected), while revenue of $27.5 billion also surpassed the $27 billion estimate. Year over year, earnings improved 11%, while revenue climbed by 5.9%. Net interest income ($14.6 billion) also came in slightly higher than expected, while equities trading revenue improved 17% – no small feat during a down quarter for the market (although investment banking fees slipped 3% year over year).

BAC shares are still well below their early-February highs above 47, but it appears they’ve left their early-April lows (34) in the dust. The stock has 45% upside to our 57 price target. Wednesday’s disappointing GDP report (-0.3%) knocked the stock back more than 2%, and a recession would surely throw a wrench into Bank of America’s escalating growth. But one mildly down quarter – attributed in part to an unusual amount of imports as companies tried to “beat” the tariff deadlines – is not a reason to doubt the bank just yet. But let’s keep it at Hold for at least another week and see how it responds to the GDP report in the coming days. HOLD

BYD Company Limited (BYDDY) has long been one of China’s top automakers. What really sent its sales into hyperdrive, however, was when it made the switch to all battery electric and hybrid plug-in vehicles in 2022. Revenues instantly tripled, going from $22.7 billion in 2020 (a record, despite the pandemic) to $63 billion in 2022. In 2023, sales improved another 35%, to $85 billion. In 2024, revenues ballooned to $107 billion, or 25% growth, with another 24% growth expected in 2025. The EV maker has emerged as a legitimate rival to Tesla.

But there’s even greater upside. Right now, BYD does roughly 90% of its business in China, accounting for one-third of the country’s total sales of EVs and hybrids this year. The company is trying to change that, recently opening its full-assembly plant outside of China, with a new plant in Thailand starting deliveries. A plant in Uzbekistan puts together partially assembled vehicles. A plant in Brazil is expected to open early next year. And BYD has plans to open more new plants in Cambodia, Hungary, Indonesia, Pakistan and Turkey. Mexico and Vietnam are possible targets as well. Despite no plans to do business in America just yet, BYD is on the verge of becoming a global brand.

And while BYDDY stock has fared well, it hasn’t grown as fast as the company. At 20x earnings estimates, BYDDY currently trades at less than a quarter of its five-year average forward P/E ratio (89.6). And its price-to-sales (1.24) ratio is about half the normal five-year ratio. As BYD continues to expand globally, look for its valuation to catch up with its industry-leading performance.

BYDDY shares were off 6% this week despite another impressive earnings report last Friday. Profits for the Chinese EV maker exactly doubled in the first quarter, its best bottom-line performance in nearly two years, while sales improved 36.4% to 170.4 billion yuan. Market share in its home market of China – where it does roughly 90% of business, though it’s making a hard charge at expanding globally (BYD is targeting 800,000 cars exported this year) – increased to 13.6%, up from 12.1% in Q1 a year ago.

After a huge recovery rally in the two weeks prior to the report, it’s possible the good news was already priced in, and some profit-takers pounced once the stock reached 104. I expect it will bounce back in the coming weeks. Coming on the heels of introducing a new God’s Eye self-driving car technology and rolling out a charger capable of charging up to 300 miles in just five minutes, Friday’s earnings report only adds to our bullishness on BYD. We maintain our 115 price target, which still seems conservative even after this week’s pullback. Take advantage of the dip if you don’t already own shares. BUY

The Cheesecake Factory Inc. (CAKE) is ubiquitous. With 345 North American locations, chances are you’ve eaten at one, indulged in their specialty high-calorie but oh-so-tasty cheesecakes and browsed through menus long enough to be a James Joyce novel. But despite being seemingly everywhere already and nearly a half-century old, the company is still growing.

Sales have improved every year since Covid (2020), reaching a record $3.44 billion in 2023. In 2024, revenues expanded to $3.58 billion. But the earnings growth is the real selling point. EPS more than doubled in 2023 (to $2.10 from 87 cents in 2022) and swelled to $3.28 in 2024, a 56% improvement.

It’s still expanding too, opening 26 new restaurants in 2024, with plans to open another 25 this year. Those aren’t just Cheesecake Factories – the company also owns North Italia, a handmade pizza and pasta chain; Flower Child, a health food chain that caters to those with special diets (vegetarians, vegans, gluten-free, etc.); and Blanco, a Mexican chain owned by Fox Restaurant Concepts, which The Cheesecake Factory Corp. acquired in 2019.

CAKE shares trade at 13.4x 2025 EPS estimates and at 0.68x sales. The bottom-line valuation is well below the five-year average forward P/E ratio of 15.6; the price-to-sales ratio is in line with the five-year average.

With shares trading at 20% below their 2017 and 2021 highs, there’s plenty of room to run.

CAKE shares were off about 4% ahead of yesterday’s earnings report, which came out after the market close. (EPS of 93 cents surpassed the 81-cent estimate and was 27% higher than the 73 cents it earned last year; sales of $927.2 million was in line with estimates, and marked a 4% year-over-year increase.) The pullback from last week’s 8% run-up on no news is no surprise, and the stock is still well above its early-April lows. I’ll have more commentary on the Q1 earnings report in next week’s update once I’ve had time to digest them. In the meantime, CAKE remains a Buy with 32% upside to our 65 price target. BUY

Dick’s Sporting Goods (DKS) has been growing steadily for years.

From 2016 to 2023, the sporting goods chain’s revenues have improved 64%, from just under $8 billion to just under $13 billion. In 2024, topped $13 billion for the first time. It should top $14 billion this year.

Dick’s, in fact, has grown sales in each of the last seven years – including in 2020 and 2021, when most other retailers saw sales nosedive due to Covid restrictions. But Dick’s all-weather ability to keep growing no matter what’s happening in the world or the economy speaks to its versatility. Since Covid ended, however, Dick’s sales have entered another stratosphere. As youth sports returned in 2021, Dick’s revenues jumped from $9.58 billion to $12.29 billion. They’ve been rising steadily each year since and are expected to do so again this year.

But Dick’s isn’t purely a growth stock—it’s also undervalued. DKS shares currently trade at 12.8x forward earnings estimates and at 1.14x sales. To be sure, it’s not the cheapest stock in our portfolio. But it is one of the fastest growing – and pays a solid dividend to boot.

DKS shares were up 1% this week as the stock continues its recovery from all the tariff shock. There’s been no company-specific news, but few large-cap U.S. retailers have more of a vested interest in which countries ultimately get tariffed – and by how much. That’s because much of the footwear and other sports apparel sold at Dick’s is made in places like China, Vietnam, and Indonesia, which received some of the steepest tariffs. China’s, of course, have escalated to north of 200%, though reciprocal tariffs on the other countries are on hold. Any positive news regarding tariffs – namely, if tempers between the U.S. and China cool and their sky-high tariffs on each other get reduced – could be the biggest catalyst that propels this stock in the absence of any hard data.

DKS shares have 34% upside to our 250 price target. BUY

Energy Transfer LP (ET) is one of the largest and most diversified midstream energy companies in North America, with approximately 130,000 miles of pipeline transporting oil and natural gas across 44 states. The company transports, stores and terminals natural gas, crude oil, natural gas liquids, refined products and liquid natural gas. Formed in 1996, Energy Transfer came public as a limited partnership in 2004 and has grown from a Texas-based natural gas supplier with 200 miles of pipeline to a national brand that spans nearly every state in the U.S. Today, Energy Transfer transports roughly 30% of all U.S. natural gas and 40% of all U.S.-produced crude oil.

And its reach is expanding, having inked several recent megadeals, including a joint venture with Sunoco (SUN). As the firm’s reach expands, so are its earnings and revenues. This year, EPS is expected to surge 15%, while revenues are on track for 8% growth. After a couple down years, the company has clearly recaptured momentum, with revenues expected to match their 2022 highs ($89 billion) this year and EPS ($1.47) hurtling toward a four-year high.

The stock has a history of outperformance, having beaten the market by almost 4-to-1 over the last one-, three- and five-year periods. But it’s off to a very slow start this year, and is trading at a mere 10.3x EPS estimates and 0.7x sales.

Meanwhile, as a master limited partnership (MLP), ET is a very generous dividend payer, with a current yield of 7.6%. The dividend is constantly growing – the company raised the payout by 3.2% in the fourth quarter and intends to raise it by another 3% to 5% this year. That kind of steady, high-yield income makes ET even more appealing in uncertain times like this one.

ET shares pulled back 3.5% this week, with most of the losses coming on Wednesday after the disappointing first-quarter GDP report. Earnings are due out next Tuesday, May 6, so that will likely be the real determinant – along with crude oil prices – of where the stock goes from here. Analysts are looking for a 9.4% gain in EPS (from 32 cents to 35 cents) with sales to be roughly flat. We’ll see how the actual results compare. In the meantime, the stock has 45% upside to our 24 price target. BUY

Buy Low Opportunities Portfolio

Buy Low Opportunities Portfolio stocks include a wide range of value opportunities. These stocks carry higher risk than our Growth & Income stocks yet also offer more potential upside. This group may include stocks across the quality and market cap spectrum, including those with relatively high levels of debt and a less clear earnings outlook. The stocks may not pay a dividend. In all cases, the shares will trade at meaningful discounts to our estimate of fair value.

ADT Inc. (ADT) is literally a household name.

It’s a 150-year-old home security company whose octagon-shaped blue signs with white lettering that say “Secured by ADT” are ever-present in neighborhoods across the country. ADT provides security to millions of American homes and businesses, with products ranging from security cameras, alarms and smoke & CO detectors, to door/window/glass break sensors and more, all of which can alert one of ADT’s industry-best six 24/7 monitoring centers if any one of those security systems is breached.

Business has been fairly stable, with annual revenues hovering in the $5 billion range for four of the last five years (2021 was an exception, with a dip down to $4.2 billion during Covid) and is on track to do it again both this year and next. But where the century-and-a-half-old company has really improved of late is profitability. The last three years marked the first time the company has been in the black in consecutive years, with earnings per share going from 15 cents in 2022 to 51 cents in 2023 to 69 cents a share in 2024. EPS is expected to improve to 81 cents in 2025.

All of that EPS growth makes the share price look quite cheap. ADT shares currently trade at just 9.5x earnings estimates and at just 1.5x sales. A solid dividend (2.8%) adds to the appeal of this mid-cap stock.

ADT shares were flat this week after getting a modest 2% bump last week after earnings. The results were solid. Revenue improved by 7% to $1.27 billion; adjusted EPS came in at 21 cents; GAAP operating cash flows shot up 28%; and the company reported record customer retention rates, with recurring monthly revenue up 2% to $360 million. Also, the company returned $445 million to shareholders in Q1 in the form of buybacks and dividends. In February, ADT’s board approved a $500 million share repurchase plan.

We have a nice gain on ADT thus far, and the stock still has 25% upside to our 10 price target. BUY

The Cigna Group (CI) is the fifth-largest healthcare company in the U.S., with $247 billion in revenue over the last 12 months. It’s a health benefits and medical care provider with a market cap of $90 billion, 170 million customers in over 30 countries, that pays a dividend (1.8% yield) and grew sales by 27% and adjusted earnings by 9% in 2024 and is expecting another 10% growth this year. And yet, the stock hasn’t budged much in two years and trades at a mere 11.3x earnings estimates and 0.39x sales.

Why the underperformance? Earnings have been inconsistent, with EPS declining 18.8% in 2023 and by 31.4% in 2021. But that appears to be changing, with double-digit growth last year and expected again in 2025, led by its Evernorth Health Services branch, which reported 33% revenue growth in the latest quarter. And healthcare stocks as a group were the second-worst performer of the 11 major S&P 500 sectors in 2024, up a mere 0.87%. As Baby Boomers reach their golden years, healthcare is more in demand than ever, so the sector won’t stay down long. And CI has a habit of outperforming when times are good.

CI shares continued to inch higher, by less than 1% this week, ahead of tomorrow’s (May 2) earnings report. Analysts are looking for 5.5% revenue growth but a 1.9% EPS decline. We’ll see if the company can top those modest estimates, and if so, if it can propel shares higher despite already being up 22.5% year to date. Given the value (11.4x forward earnings and 0.4x sales), I think there’s still plenty of upside. Our price target remains at 420. BUY

The next Cabot Value Investor issue will be published on June 5, 2025.

Copyright © 2025. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.