Best Vacation Stocks

Editor’s note: Jim Fink is on vacation this week. No one at KCI Investing authorized Jim to use the term “well-deserved” (see below).

I’m going to the beach this week for a well-deserved vacation. I know what you’re thinking: he must be going to Saint-Tropez, Mykonos, Capri, or St. John Virgin Islands. Nope. I’ll be enjoying the gorgeous beaches of Delaware! But before I go, and because it is the height of summer vacation season, I thought I would offer up five stocks that benefit from spendthrift vacationers like me.

1. Carnival Corp.  (NYSE: CCL)

Cruise or lose is my motto. I love cruises, primarily because I’m a glutton and they offer all-you-can-eat buffets virtually 24 hours a day.  It’s no wonder that cruise patrons are some of the fattest people on earth. When investing, I usually like to go with the biggest and best-of-breed company in the industry. In the case of cruising, Carnival fits the bill. Nobody is bigger than Carnival. Its 22 “fun ships” will take you to ports of call in the Caribbean, Europe, Alaska, Hawaii, and Canada.

The company continues to grow its fleet, with scheduled bottle breakings for two 130,000-ton monstrosities: the Carnival Magic in 2011 and the Carnival Breeze in 2012. Royal Caribbean’s (NYSE: RCL) Oasis of the Seas is the biggest cruise ship in the world at 225,000 tons, but 130,000 tons is plenty big. Furthermore, I want to vacation on a ship, not a floating continent.

Less than 20% of the U.S. population has ever been on a cruise, so there is plenty of room for expansion. And the demographic trend towards an older population bodes well for Carnival, as retired people are most likely to go on a cruise since they have the time and money. Cruises aren’t cheap, but Carnival’s are more affordable than most. They’re a great package deal of transportation, lodging, food, and entertainment. Just don’t get seasick or catch a virus.

Speaking of entertainment, KCI’s own Elliott Gue will be on board Holland America’s Eurodam next February on a Money Answers investment cruise. Don’t miss it!

2. Quiksilver (NYSE: ZQK)

This $600 million small-cap sportswear stock has an ultra-cool website that just screams surfing and the beach. With all the images of surfers, you’d think the company sells surfboards in its 500-plus company-owned retail stores, but it actually just sells apparel and other soft-good accessories like shoes and sunglasses. If you need swim trunks or a surfing wetsuit, this is the chic place to get them. Skateboarding and ski apparel are big also.

Unfortunately, the company’s financials aren’t as cool. Net income has been negative for the past three fiscal years. A disastrous acquisition of ski manufacturer Rossignol in 2005 saddled the company with debt, but the company corrected the error by selling Rossignol off three years later, albeit at less than half of its purchase price. Quiksilver has over $800 million in debt, which is more than its market cap. Its stock is still down 75% from its 2005 pre-Rossignol high price of $18.12.

But things are looking up. The stock has more than doubled this year and the company is in the process of reducing its debt load by exchanging its stock for up to $140 million in debt with private equity firm Rhone. Moody’s is so encouraged by this debt swap that it will likely raise Quiksilver’s credit rating. I’m not sure the stock can make it all the way back to double digits, but $6.25 looks doable which would be a 40% gain from here.

3. Interval Leisure Group (NasdaqGS: IILG)

What’s a better vacation destination than Hawaii? If you stay at a hotel in Hawaii or rent a condo in Maui, there’s a good chance it is managed by Interval Leisure Group, a spin-off from IACInterActive (NasdaqGS: IACI) two years ago. I like spinoffs because they start life nurtured inside a larger corporation and are only set free when they are ready to compete and win on their own. Famous hedge fund manager Joel Greenblatt in his book You Can Be a Stock Market Genius writes very favorably about spinoffs and how they tend to outperform in their first few years of independence. For Interval Leisure Group, that time is now.

IILG is also the leading timeshare exchange network. You might love to vacation in Hawaii, but that doesn’t mean you don’t want to vacation anywhere else. If you become a member of IILG’s timeshare network, you can exchange your Hawaii timeshare for a timeshare in one of 2,500 other resorts in 75 countries.  Interval Leisure Group has 1.8 million timeshare members paying on average $160 per year. This is an asset-light business, which allows the company to earn operating margins around 30% and returns on invested capital of more than 20%. A very profitable business. 

4. PowerShares Dynamic Leisure & Entertainment (NYSE: PEJ)

Buying individual stocks is fun, but if you want diversified exposure to vacation stocks in one fell swoop, this ETF may be your best bet. Holdings in the PowerShares ETF include Interval Leisure Group, Walt Disney (NYSE: DIS), Marriott International (NYSE: MAR), and a bunch of fast-food stocks such as KFC-Pizza Hut-Taco Bell purveyor Yum! Brands (NYSE: YUM) and McDonald’s (NYSE: MCD). In the past it has also owned Internet travel site Expedia (NasdaqGS: EXPE), but not currently.

5. Claymore/NYSE Airline (NYSE: FAA)

Lastly, a vacation can’t occur unless you get there. For many vacations, this requires air travel. The Claymore/NYSE airline ETF provides you with exposure to all of the major global airlines including UAL (NasdaqGS: UAUA), Germany’s Lufthansa, and Singapore Airlines.  

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