Trade of the Day: Hilton Worldwide Holdings (HLT)

by Jon Markman | February 3, 2014 9:48 am

The stock market clattered noisily last week, like balls across a billiard table after a stiff break. They finished the week lower than where they started but they remaining above the critical 100-day average.

The Dow Jones Industrials lost 1.1%, the S&P 500 lost 0.4%, the Nasdaq fell 0.6% and the Russell 2000 sank 1.2%. It felt worse than this because of some tremendous intraday volatility that resulted in prices shooting lower, higher, and then lower again in a single session like Friday.

Volatility undermines investors’ confidence, causing them to lose sight of their goals. It is primarily the stock market’s way of shaking the most valuable stocks loose from the hands of investors with low conviction and sending them into the hands of investors with high conviction – people like me, for example.

Unlike many who are on the sidelines right now, I’ve got a dynamic portfolio of longs and shorts for my Trader’s Advantage members, including a relative new-comer to the stock market that I’d like to share with you: Hilton Worldwide Holdings (HLT[1]), the iconic hotel chain and second-biggest initial public offering (IPO) of 2013.

Hilton operates in 90 countries with more than 4,000 hotels, and according to its website is “one of the largest and fastest growing hospitality companies in the world.” Some of its most recognizable brands include the flagship Hilton Hotels & Resorts, as well as Waldorf Astoria, Doubletree by Hilton, Embassy Suites, Hampton Inn and timeshare brand Hilton Grand Vacations.

After being held by private equity firm Blackstone Group (BX[2]) for several years, HLT came public with 117 million shares on Dec. 12, valued at $20 per share. In fact, this $2.3 billion IPO was in such hot demand going into the holiday season that the shares actually began trading a day earlier than originally planned.

All in all, it was a great success for Blackstone, who took the then-struggling Hilton private in 2007 – during a significant “buyout boom,” and just before the global financial crisis hit the stock market – and is now reaping the benefits of the hotel chain’s comeback. Those investors who sold their Hilton shares to BX years ago also came out ahead in that buyout deal, and with Hilton back on the NYSE, investors have another chance to participate in this name.

As is often the case with IPOs, HLT saw plenty of volatility in its first few weeks, trading as high as $25.95 during the IPO and as low as $21.15 afterward. Shares have flat-lined around the $22 level since then, which is fine considering the troubled session for the broader stock market, but they should come under heavy accumulation soon.

I expect Hilton to move sideways with an upward bias for a while until the IPO underwriters issue new “research” that — surprise, surprise — will recommend purchase. A stock like this should really get going once it exceeds its original post-IPO range, which in this case will be above $22.50. Buy HLT at $21.85 limit, good till canceled.

Set up to sell half of the position at my initial target of $23.50. Also, place a stop loss at $21.10, good after 11:00 a.m. ET only.

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  1. HLT:
  2. BX:

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