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Yesterday, LVMH reported a 36% decline in wine and spirits. That is shocking for the entire alcohol sector, and LVMH is the best performer. STZ is -27% in the past year. No alcohol stock is willing to admit to an existential threat, but rather than drinking is normalizing after Covid. He disagrees. Cannabis is cheaper than alcohol, there's a new advisory that links alcohol to increased risk of cancer, younger people are drinking less, and the weight-loss drugs are limited alcohol cravings. What could turn this around is offering something new, like new drinks and better prices (stop increasing prices).
The shareholder base has probably rotated by now away from yield investors. The problem is that it has high debt and a high valuation, yet growth is not that great. Weather is also a factor and competition has increased somewhat. Yes, EPS is expected to show good growth in 2025, but even with a good bounce EPS will be lower than it was in 2013. We think management did the right thing with the dividend, but we still think buyers can wait here.
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With a 76% one year gain, it was not overly surprising to see some profit-taking. The quarter was solid as was the outlook and commentary. There was record member growth and loan originations. New products/services add more potential. We think it is buyable and are warming up to this name.
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RCL had a big quarter just announced, and of course has staged a huge recovery from the pandemic. Royal's expectation of a 3.5% yield gain in 2025 echoes robust onboard spending and strong demand for Europe and Alaska itineraries, with accelerated bookings in the last five weeks. Royal characterized its plan to launch river cruising -- with an initial 10-ship order and several launching in 2027 -- as an opportunity to gain share in a complementary, high-end niche with shorter construction lead times and cross-marketing opportunities. That plan sets the stage for a river fleet with capacity about 11% the size of rival Viking, including current and ordered vessels. Royal's 1Q guidance midpoint implies gains of 5% in yield and 1.85% in non-fuel unit cost. Its 4Q unit-cost growth of 13.5% was slightly above 11.6-12.1% guidance due to 340 bps from higher stock-based compensation. The stock is 18X earnings and very strong growth is predicted. It is still heavily leveraged at debt/cashflow 4X, but it is in better financial shape than many peers. Cyclicality of course remains high, but we think it is interesting as a higher risk buy for those investors willing to accept some financial and economic risks here. Its recent results and move to river cruises we think are quite positive developments.
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The value of contrarian investing:
This is not our forte, not by a long shot, but it can work for many investors. The plan: Find a stock that everyone hates. Often, of course, said stock will be down, perhaps a lot. This increases investors’ anger with the company. Many will sell out of frustration, and give up on the stock. Institutional investors may sell because the stock has declined so much it is too small for them. Or, funds just do not want investors to see that they owned this loser when they report year-end holdings to investors. Such declining scenarios often see employees leave the company and also sell their stock. It can come to a point where sentiment is so bad that no one ever expects the company to do well again. Then, something good happens, and all the sellers are gone. At times, a beaten-up stock can soar just on some simple good news. It happened last week to Walgreens Boots Alliance Inc., a stock that has been in the doghouse for years. The stock had its biggest move in four decades on a sign that its turnaround is making even the slightest bit of progress.
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He added shares during Monday's sharp sell-off. They report Friday. It's a fine, long-term story