It’s another Friday and another selloff. Investors don’t want to hold trades into the weekend during the Trump administration. You never know what will happen.
Just this week the new Commerce Secretary Howard Lutnick suggested that cruise companies could face higher taxes. My favorite cruise line companies are Carnival (CCL) and Royal Caribbean (RCL) both sold off hard.
Let me be the first to tell you that new US taxes on these companies are unlikely to happen and that both of these stocks are great buys on this selloff.
The reason the U.S. Government doesn’t charge taxes on these companies is because they chased away cruise lines as well as every other merchant marine company due to the Jones Act.
Repeal the Jones Act
Named the Merchant Marine Act of 1920, the Jones Act is a protectionist law that regulates maritime shipping in the United States. It requires that any cargo traveling by sea between two U.S. ports must sail on an American-owned ship, built in the United States and with a majority crew of U.S. citizens.
It was passed after the First World War to boost the shipping industry. And like many rent-seeking/protectionist/price-fixing rackets created by the government, it did the exact opposite. The U.S. went from being the largest merchant marine force on Earth to not having the basic capacity to build ships.
We essentially outsourced one of the key industries that made this country great since the founding of Jamestown. Pathetic.
That said, the Jones Act does make sure a handful of tugboat captains and a few others make a decent living and only work half the month. Have you ever wondered why prices are sky-high in Hawaii and Puerto Rico? That’s right: the Jones Act.
Death and Taxes
That said, the selloff in cruise lines is ludicrous. Congress has the sole ability to tax in this country. There was a similar proposal from Trump in 2017 that was abandoned. Any changes to Section 883 of the IRS code would require congressional approval.
I own both Carnival and Royal Caribbean. These companies are hitting record earnings and growth. Customers love them. Carnival’s cumulative booked position for 2025 is in its best-ever position for both price and occupancy, and demand exceeded estimates last year despite lower remaining inventory. Bookings for 2026 also achieved a record in the fourth quarter. And it is cheap with a forward PE of 14 and a price to sales of just a bit over 1.
You want an expensive stock? Just look at the rest of the market. The trailing P/E on the S&P 500 is 25. That’s ridiculous.
Enjoy your weekend,
Christian DeHaemer
Outsider Club
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