Recurve Capital, an investment management company, released its Q4 2024 investor letter. A copy of the letter can be downloaded here. Recurve had an impressive performance in 2024, successfully bouncing back from the drawdown experienced in 2022 more quickly than anticipated. The fourth quarter proved to be particularly strong, achieving nearly +13% in gross returns, compared favorably to the S&P 500 (+2.1%), Nasdaq (+6.2%), and Russell 2000 (flat). In addition, you can check the fund’s top 5 holdings to find out its best picks for 2024.
In its fourth quarter 2024 investor letter, Recurve Capital emphasized stocks such as Royal Caribbean Cruises Ltd. (NYSE:RCL). Royal Caribbean Cruises Ltd. (NYSE:RCL) is a cruise company. The one-month return Royal Caribbean Cruises Ltd. (NYSE:RCL) was 17.45%, and its shares gained 120.61% of their value over the last 52 weeks. On February 5, 2024, Royal Caribbean Cruises Ltd. (NYSE:RCL) stock closed at $266.87 per share, with a market capitalization of $71.761 billion.
Recurve Capital stated the following regarding Royal Caribbean Cruises Ltd. (NYSE:RCL) in its Q4 2024 investor letter:
“Cruise companies (Royal Caribbean Cruises Ltd. (NYSE:RCL) and NCLH) – 12% of assets as of 12/31/2024
The cruise lines are disruptive in the vacation market. They offer extraordinary, high-satisfaction experiences at great value compared to land-based alternatives. The scale of demand they generate in their businesses allows them to build bigger and better assets, including new portfolios of private destinations which elevate satisfaction while keeping customers (and their wallets) captive within the cruise ecosystem all day. These private destinations magnify the returns of all the vessels that visit these destinations and improve ROIC across their asset portfolios. They have meaningful opportunities to continue these and other innovative expansions over the coming decades. I recommend reading our recent Insight about RCL’s private resorts.
With only 2% market share in vacations and less than 10% of all Americans ever having taken a cruise (but with high repeat rates), the sector has a long way to go before it reaches maturity – especially as the operators keep elevating the quality of the assets and the experiences they can deliver to guests. There remains a significant price differential between cruise vacations and their land-based alternatives, but cruising is not just a value play. The experience is unique and compelling outside of its superior economic value. These are not like customers looking to trade down from a Ritz Carlton to a Marriott to save money – these are vacationers looking for a unique experience that only cruising can deliver.
RCL and NCLH trade at relatively modest P/E multiples. They have highly visible future capacity growth since newbuild pipelines are contracted years in advance. Their normalized growth algorithm is straightforward and reminds me of the old cable equity algorithm (back when there was growth in cable!): modest capacity growth + modest pricing growth + cost growth below inflation = HSD/LDD revenue growth and LDD-mid-teens earnings growth. If we layer on accretive balance sheet actions that are now opening up in the post-Covid recovery period (reducing interest expense and returning capital to shareholders), we can get to >20% medium-term EPS CAGRs.
Both RCL and NCLH trade at undemanding valuations because most investors treat them as cyclicals trading at or near peak earnings or peak pricing power. There will always be periods of relative strength and weakness, but the long-term trendline on pricing is up – well above inflation. It would take a severe recession for pricing to turn negative.
An aerial view of a luxurious cruise ship, surrounded by the blue horizon.
Royal Caribbean Cruises Ltd. (NYSE:RCL) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 52 hedge fund portfolios held Royal Caribbean Cruises Ltd. (NYSE:RCL) at the end of the third quarter which was 48 in the previous quarter. While we acknowledge the potential of Royal Caribbean Cruises Ltd. (NYSE:RCL) as an investment, our conviction lies in the belief that 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 is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article we discussed Royal Caribbean Cruises Ltd. (NYSE:RCL) and shared the list of high growth travel services stocks for 2025. Royal Caribbean Cruises Ltd. (NYSE:RCL) contributed to Ariel Fund’s performance in the fourth quarter of 2024. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.