Rolls Royce has been one of the best FTSE shares to buy in 2023. Here’s another

No prizes for guessing which FTSE company will end the year among the market’s top performers. But very little fuss has been made about another winner.

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It’s not an overstatement to say that Rolls-Royce (LSE: RR) shares have had a magnificent year. Indeed, the company looks set to be one of the best-performing FTSE stocks in 2023.

But there’s another big riser that’s been less talked about.

Covid-19 casualty

Back in 2020, cruise operator Carnival (LSE: CCL) was in crisis. Covid-19 was rapidly spreading around the world. Many of its ships became known as ‘floating Petri dishes’ as passengers were prevented from leaving. As lockdowns were then enforced, those still to travel were forced to cancel their trips as the industry ground to a halt.

Understandably, the shares were hit hard. I know this only too well — I held a position in the stock at the time.

To stay afloat, Carnival had to take on a huge amount of debt. It still needed to maintain its ships, even if they weren’t going anywhere. Unsurprisingly, the dividend stream — my main reason for owning a stake — was also cut completely.

Back on form

Having made it through the storm, recent times have been very different. After being told to stay behind their doors for so long — and despite a cost-of-living crisis — demand from cruisers is now booming. This has helped volumes and revenues within the industry to recover.

And that demand only looks set to keep rising. Trade body Cruise Lines International Association believes that roughly 35.7 million people will take to the seas in 2024. That would be a 13% jump from 2023. Importantly, it’s also 6% higher than pre-pandemic 2019.

No wonder the Carnival share price has been on a tear, albeit with a bit more volatility than that seen over at Rolls-Royce.

Once bitten…

Despite all this, I’m unlikely to venture near the shares for a second time, based on the current valuation.

Yes, the recovery could continue, especially if discretionary spending rebounds as interest rates are cut. Longer-term, I can only see demand for cruises growing given how increasingly active we all are, especially those in their golden years. As the ruler of the waves in this sector, Carnival’s future looks far better than it once did.

But that debt pile remains, making the company look vulnerable to any unexpected crises. Meanwhile, its fleet requires ongoing and substantial investment.

This means dividends will stay off the menu. So I won’t be compensated if, for whatever reason, the shares tumble in 2024.

This makes a forecast price-to-earnings (P/E) ratio of 18 look fairly rich, to my eyes.

Of course, the same could be said about Rolls-Royce. Here, the PE stands at 24 for FY24. That’s far from cheap. Then again, it does look in better financial shape, partly due to CEO Tufan Erginbilgiç’s no-nonsense turnaround strategy. But there’s still no dividend here either.

Here’s what I’m doing

Ultimately, I’m looking to buy stakes in high-quality companies to hold for years. While both of these FTSE stocks have done incredibly well in 2023, neither ticks as many boxes as I would like. I’m also wary of some profit-taking in 2024 if already-lofty expectations aren’t met.

Franklin D Roosevelt once reflected that “a smooth sea never made a skillful sailor“. With a finite amount of cash at my disposal however, I’m driven to look for brilliant bargain buys elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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