Travel Stocks Roaring Higher … for Now

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Airlines, drug retailers, and semiconductors — each have performed remarkably in the stock market over the last year. But what about lodging?

1 industry quietly roaring higherTravel and tourism stocks are down about 7% in the last 52 weeks, far underperforming the 15% gains of the S&P 500 over that time.

That, however, looks primed to change.

Hotel rates are set to rise steeply in 2015, according to PKF Hospitality Research’s Mark Woodworth. The average fare of a U.S. hotel room is set to rise some 5.4% this year, according to his research. That should mean some great things for hotel stocks and travel companies like Hilton Worldwide Holdings Inc (NYSE:HLT), Marriott International Inc (NASDAQ:MAR), Expedia Inc (NASDAQ:EXPE), Priceline Group Inc (NASDAQ:PCLN) and others.

Let the Bulls Run!

As Taylor Swift aptly notes in her hit single “Shake It Off,” haters gonna hate, hate, hate, hate, hate. What the young pop sensation does not mention, however, is how hotel and travel stocks are gonna run, run, run, run, run.

HLT, MAR, and EXPE, are up 18%, 58% and 30% in the last year alone, but with hotel prices set to continue their rise, run has only just begun.

Marriott in particular is primed to extend its rem

arkable gains. CEO Arne Sorenson recently noted some particularly strong bullish factors in his industry:

“‘There are a billion trips taken a year,’ he said. ‘And that’s growing by about 10 percent every year. You look at the growing middle classes in China, India and South America, and that’s driving demand for hotels.'”

Marriott expects to have a total of 1 million rooms by sometime mid-year after a remarkable addition of 100,000 rooms in 2014. EXPE, PCLN, Tripadvisor Inc (NASDAQ:TRIP), and Orbitz Worldwide, Inc. (NYSE:OWW) — the biggest players in the online travel industry — derive a healthy portion of their revenue from hotel bookings, so the increase in hotel rates bodes extremely well for them.

Margins from Expedia’s hotel room sales, for example, are much higher than other division, with the 23% margins easily topping that of both car rentals and cruises (9%), and airlines (3%), according to Forbes.

EXPE isn’t the only one in its industry reaping the rewards of these attractive economics. Orbitz’s stock price recently enjoyed a boost, as news broke that OWW was exploring a sale.

The Big Question: How Long Can it Last?

While the hotel and travel industry may be an overlooked winner for now, how long can it enjoy today’s favorable conditions? Sometime in the next year, PKF’s Woodworth predicts that demand will begin to taper off due to price hikes.

Plus, if China’s prospects start tapering off — as the country’s decelerating GDP growth strongly suggests — the boon to hotel and travel stock may be short-lived. On top of that, if oil prices rebound, as several prominent investors like Carl Icahn and T. Boone Pickens believe it eventually will, consumers will have less money in their pockets to blow on hotels and travel.

But in the meantime, HLT, MAR, EXPE, and other stocks should have some nice tailwinds helping them rally. But if hoteliers get too greedy too quickly, these stocks will fall rapidly with demand.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/travel-stocks-roaring-higher-now/.

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