The first official summer day is June 20, just two months from now. This has me thinking about summer stocks and companies that benefit from the warm weather between June and September.
Walt Disney (NYSE:DIS) naturally comes to mind. If you bought last October at its 52-week low of $78.73, you’re up 43% in six months. That’s a marked improvement from the previous six months.
What makes a good summer stock? One that makes good money in the summer but isn’t overly reliant on this brief window of opportunity, like Cedar Fair (NYSE:FUN) or Six Flags Entertainment (NYSE:SIX) are.
The best long-term winners are those companies that make money in all four seasons. They don’t have to be obvious choices. For example, Nike (NYSE:NKE) and Lululemon (NASDAQ:LULU) would be good summer stocks. These two sell apparel for 12 months of the year. Based on that logic, here are my top three choices for summer stocks.
Royal Caribbean Group (RCL)
Royal Caribbean Group (NYSE:RCL) has always been among my favorite leisure stocks. The cruise industry suffered greatly during the pandemic, but when health scares don’t dampen travelers’ enthusiasm, it’s one of the most consistent businesses on the planet for revenue and profit generation.
RCL stock is off to an average start in 2024, up 6.5%, neck and neck with the S&P 500, but up 98% over the past year, almost five times the index. Since its March 2020 low of around $24, it’s up 433% despite a 15-month shutdown due to Covid. This strong bounce back is a great example of the company’s resiliency.
In mid-March, Macquarie analyst Paul Golding increased his RCL target price by $15 to $160 while reaffirming his “outperform” rating. “‘We see RCL as best-in-class,’ Golding wrote in a research note. ‘…RCL continues setting new company records thanks to strength in product and demand, allowing RCL to capitalize on growth across supply type (new ship formats) and the value proposition it represents, while paying down high-rate debt,’” Barron’s reported.
In June 202o, I recommended Royal Caribbean stock. It was trading at around $55. Now it’s at $128, and I still like it whether it’s spring, summer, winter or fall.
Camping World Holdings (CWH)
Higher interest rates have not been good for stocks like Camping World Holdings (NYSE:CWH), the country’s largest retailer of recreational vehicles (RVs). The company has 198 RV dealerships and another four RV service and retail centers as of Dec. 31, 2023.
One way you can tell the business slowed down in 2023 was its 5.8% decline in active customers. An active customer is any customer who has completed a transaction of any kind with the company in the previous two years. Unfortunately, last year that number slipped just below 5 million.
However, late in 2023, business started to improve. “Beginning in December, our new vehicle same store unit growth turned positive, with January and February to date trending up from mid-single to low-double digits,” stated CEO Marcus Lemonis in the company’s Q4 2023 press release.
Chief Financial Officer Matt Wagner added, “Positive demand trends, inventory discipline, strength in our Good Sam segment and the service and parts portion of our business, acquisitions, and cost reductions, give us confidence in delivering unit volume and strong earnings growth in 2024 while continuing our march to 320 locations by 2028.”
Despite the stock being down 18% in 2024, analysts like it, with nine out of 12 rating it a “buy,” with a $30 target price. Come summer, sales should start to sizzle.
Delta Air Lines (DAL)
Delta Air Lines (NYSE:DAL) is my favorite airline stock. It’s also poised to be one of the great summer stocks this year given it’s had an excellent start to 2024 already. It’s up 18% which is triple the S&P 500 and 2.5 times the U.S. Global Jets ETF (NYSEARCA:JETS). The downside is that it’s still down 16.2% over the past five years, well below the index’s 70% return.
It’s a tricky business. Just ask Warren Buffett. “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines,” Buffett wrote in the 2007 Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) shareholder letter.
Undoubtedly, the airline business is a harsh industry to make money consistently. However, people will continue flying, so the opportunity to generate revenue will always remain, unlike the horse and buggy.
On April 10, Delta reported Q1 2024 results that included a 77% increase in its adjusted earnings per share to 45 cents, 11 cents higher than the analyst estimate. On the top line, its revenues were 6% higher at $12.56 billion, $100 million higher than Wall Street’s estimate.
For 2024, it expects to generate $3.5 billion in free cash flow at the midpoint of its guidance. Based on an enterprise value of $51.9 billion, that’s a free cash flow yield of 6.7%. Anything between 4% and 8% is a reasonable price. Above 8% is value territory.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.