Macquarie Research has upgraded the cruise stocks to Outperform, asserting that “most negative catalysts are in the rear-view mirror.”
2 min
Macquarie Research has upgraded the cruise stocks to Outperform, asserting that “most negative catalysts are in the rear-view mirror.”
Based on valuation, Paul Golding and Charles Yu of Macquarie wrote that they see the most upside in Norwegian Cruise Line Holdings (ticker: NCLH), followed by Carnival (CCL), and Royal Caribbean Group (RCL). They upgraded the stocks from Neutral.
Shares for Norwegian were at $31 and change Tuesday morning, up 4.6% in early trading, while Royal Caribbean and Carnival were also each up more than 4%.
The cruise operators have for the most part been unable to have any sailings for about a year due to the pandemic. A key question is when sailings in and out of U.S. reports will resume. The Centers for Disease Control and Prevention issued a conditional sail order last October, but U.S. sailings haven’t resumed. The cruise companies have suspended their U.S. sailings well into the spring.
Golding and Yu wrote that “technical instructions from the CDC are also forthcoming and could drive more confidence.”
In an email to Barron’s early last month, a CDC representative wrote: “Future orders and technical instructions will address additional activities to help cruise lines prepare for and return to passenger operations in a manner that mitigates COVID-19 risk among passengers, crew members, including simulated voyages, certification for conditional sailing, and restricted voyages.”
Although still well below their pre-pandemic levels in early 2020, the cruise stocks have been moving up as investors get more confident about a reopening of the economy. As of Monday’s close, the stocks of all three companies were up by at least 15% year to date.
Besides forthcoming guidance from the CDC, macro catalysts for the cruise companies include “an expectation of sufficient vaccine efficacy for consumers to feel comfortable engaging in leisure activities.”
“While shares have bounced quite a way off their 1-[year] lows, and barring recession or a sector rerating, the catalysts should trend more positive from here into summer,” they wrote.
The research note points out that Carnival’s announcement last month that it had closed on a $3.5 billion senior unsecured debt offering “bodes well” for its liquidity situation and for the industry’s. “It demonstrates the potential for the group to continue to fund operations even if the suspension gets drawn out,” they noted.
Separately, Carnival announced last month that it had priced an offering for its 40.5 million shares of common stock at $25.10. That adds up to about $1 billion of additional capital, one of various steps the company has taken to shore up its liquidity as its ships sit idle and it burns through hundreds of millions of dollars every month.
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
