The cruise industry accelerated after taking a significant hit during the COVID-19 pandemic. As per the Cruise Lines International Association (CLIA), ~35.7 million passengers are anticipated to set sail in 2024. This translates to 6% growth as compared to 2019. JP Morgan Research highlighted that major cruise lines enjoyed a successful 2024 wave season between January and March when operators provided the best deals. CLIA highlighted that, in 2023, the passenger volume touched a record 31.7 million, exhibiting a rise of 7% over 2019 levels.
Wall Street experts believe that travel exchange-traded funds (ETFs) are well-placed to soar on the back of a resurgence in consumer demand for travel-related activities, supported by post-pandemic recovery and changing consumer behaviors. Amidst some short-term challenges, the long-term outlook for the travel sector is positive as a result of demographic shifts and an increased preference for experiential spending.
Positive Demographic Shifts Should Be a Primary Growth Enabler
Earlier, Baby Boomers used to make up the core consumer base for the broader cruise industry. Today, however, an increased number of younger travelers continue to come on board. As per CLIA, ~73% of Millennials and Gen X travelers mentioned that they would consider a cruise vacation. Also, a renowned cruise company has recently mentioned that half of its cruise customers are Millennials or younger. This is because of rising affluence. Moreover, according to the bank’s research, the spending capacity of Millennial customers has seen an increase of ~49% since 2019. Today, the average net worth of an individual aged 40 or under sits at ~$259K.
The cruises continue to attract more first-time passengers. The cruise companies are seeing “new-to-cruise” in their 2025 bookings, with this customer category rising by more than 30% versus a year ago.
The bank believes that cruise operators are improving and modernizing their offerings to make them appealing and highlighted that key operators continue to invest in new hardware, notably mega-ships and private destinations. This has been driving more eyeballs to the broader cruise and tourism industry, accelerating new-to-cruise acquisition. CLIA recently highlighted that the cruise industry has been deploying billions in new ships and engines which give flexibility to use low to zero-GHG fuels with little to no engine modification.
Cruises Over Land-based Activities
According to a survey by the bank’s research division held in April, only ~29% of respondents have excess savings. Notably, ~45% of the respondents are expected to spend less in discretionary categories over the upcoming 12 months. This implies an increased cautious behavior even in the environment of moderating inflation.
This scenario is placing cruise voyages, that are cheaper than land-based vacations, in a strong position. Consumers are focused on value within discretionary categories. The value spread between cruises and land-based alternatives stood at 25%-30% today as compared to 10%-15% pre-pandemic. Despite higher inflation, cruise lines continue to focus on improved experiences, without compromising quality or service. This should further enhance their value.
Despite a tough consumer spending environment, both ticket and onboard prices increased over the past few months. This means that the demand backdrop is strong for the overall cruise industry. The bank’s research shows that more than 85% of tickets have been booked for 2024, with a focus now turning to 2025 and bookings already exceeding historical levels. Moreover, the industry should grow revenues by high-single digits over the upcoming 5 years, tapping ~3.8% of the global vacation market by 2028.
Our methodology
To list the 10 Worst Cruise Stocks to Buy Now According to Short Sellers, we used a Finviz screener to filter out stocks catering to the cruise business. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Are Short Sellers Bearish About Mondee Holdings, Inc. (NASDAQ:MOND)?
Mondee Holdings, Inc. (NASDAQ:MOND) is a travel technology company. It has announced the launch of Mondee Travel Marketplace featuring Abhi, its AI-powered travel assistant platform focusing on the cruise booking process.
The company’s stock has seen a decline of over ~70% over the past year, and short sellers believe that this decline was mainly because of broader economic pressures and sector-specific headwinds. Mondee Holdings, Inc. (NASDAQ:MOND) continues to face working capital constraints and a lower demand, which might continue into 3Q 2024. As a result, the company reduced its forecast for FY 2024. Short sellers believe that the challenging period, mainly because of softer demand and financial constraints, might continue in the remaining half of 2024.
However, Wall Street analysts believe that its strategic refinancing of term loans and preferred equity hints at the strong position for future market share penetration and stable revenue growth. Mondee Holdings, Inc. (NASDAQ:MOND) continues to address its capital constraints as it has extended its 2028 obligations and is focused on increased take rate offerings, like travel packages. This strategy should help the company improve profit margins in the upcoming quarters. The new capital structure is expected to fuel the company’s expansion, improve profitability, and solidify its AI leadership in travel.
Mondee Holdings, Inc. (NASDAQ:MOND)’s much-anticipated refinancing should offer financial flexibility and additional working capital. Therefore, the company might resume and accelerate its growth trajectory.
As per Insider Monkey’s 2Q 2024 database, Mondee Holdings, Inc. (NASDAQ:MOND) was included in the portfolios of 2 hedge funds, up from 1 in the preceding quarter.
Overall MOND ranks 5th on our list of the worst cruise stocks to buy now according to short sellers. While we acknowledge the potential of MOND as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that's more promising than the stocks on our list, check out our report about the cheapest AI stock.
