As summer officially kicks off this week, hotel chains have great expectations for strong vacation-driven profits. But despite strengthening consumer confidence, some hotel chain stocks are better positioned to cash in on industry trends than others.
The rise in U.S. consumer confidence is fueling growth in the hospitality industry, and many properties are poised to build upon last year’s gains. In 2012, upper midscale hotel chains in the U.S. averaged profit growth of more than 7%, according to STR Analytics’ new 2013 HOST Almanac. Performance at luxury chains was even stronger, averaging profit increases of 15%, although economy and midscale chains averaged flat growth.
Those trends are continuing this year: e-forecasting.com’s Hotel Industry Pulse index had a positive rate of 4.9%, which translates into stronger industry momentum. Economic activity at U.S. hotels has increased by 3.5% in the past 12 months.
One caveat: hotel stocks are about as cyclical as it gets, so if the economy turns south, this sector will follow suit fast (as investors learned in 2009). But as consumer confidence buoys the hotel industry, some properties are a better bet for investors. So let’s weed out the winners from the losers: