It’s no secret that equity markets bottom out well before the economy does. And with U.S. markets surging higher and optimism in Europe, the worst related to the novel coronavirus might be over. The travel and tourism industry has witnessed difficult times in fiscal year 2020. However, as economic activity increases, pent-up demand will translate into growth for the tourism industry — and that’s great news for travel stocks.
In terms of importance when discussing the travel industry, tourism accounts for 10% of the world’s GDP and jobs. Furthermore, 850,000 people travel each month from Europe to the United States. So with the coronavirus past the peak in these regions, travel stocks will be able to soar in the foreseeable future.
Moreover, I will discuss three attractive travel stocks that can be considered by investors for the medium to long term. They are:
So, let’s dive in.
Travel Stocks to Buy: Carnival Corporation (CCL)
In the market meltdown triggered by the coronavirus, CCL stock touched a low of $7.80. Nontheless, the stock has already doubled and returned to the $17.50. However, CCL stock had traded at a 52-week high of $53.34 before the selloff. Therefore, there plenty of upside remaining if cruising demand surges in the coming quarters. Investors can consider fresh exposure to the stock on any potential near-term profit booking.
There is already indication of significant pent-up demand, which can translate into strong revenue late in FY2020 or into the next year. Early in May 2020, the company had announced that it will offer some cruises in August 2020. In turn, bookings surged by 200% as compared to the same period in FY2019. Clearly, consumers are eagerly looking forward to travel, and the renewed growth in the tourism industry can surprise in the coming quarters.
From a financial perspective, Carnival Corporation is well-positioned with ample liquidity buffer. With a public offering of common stock along with senior note offering, the company is positioned to navigate the crisis.
A potential risk to this bullish view is a second wave of coronavirus in winter. However, it makes sense to consider some exposure to the stock. The booking demand for FY2021 is “on pace with normal levels” and the worst seems to be over.
TripAdvisor is another company that can trend higher in the coming quarters as the travel industry bounces back. TRIP stock has gained more than 30% from lows during the peak of the panic-driven selling triggered by the coronavirus. However, there is more juice in the rally as the world crawls back to normalcy.
The reason to like TripAdvisor is the company’s end-to-end user experience, which drives strong monthly unique visitors. And with the long-term travel market opportunity gradually shifting online, the company has strong, long-term growth visibility.
It’s worth noting that digital advertising contributed $160 million in media advertising revenue for the company in FY2019. So as the digital advertising market grows, it provides significant revenue upside scope for TripAdvisor.
From a financial perspective, TripAdvisor reported cash and equivalents of $798 million as of March 2020. This provides the company with ample liquidity to navigate the current crisis period.
Overall, TRIP stock looks interesting with the company positioned for steady growth beyond the crisis. In particular, emerging markets can be a potential game changer as living standards increase and desire for tourism increases.
Hilton Worldwide (HLT)
The hotel business has also stalled due to the coronavirus. However, there are early signs of revival and Hilton Worldwide is attractive.
To put things into perspective, Hilton reported a low of 13% in terms of global occupancy. When the company reported Q1 2020 results, occupancy had already improved to 23%. And with several economies re-opening, it’s likely that occupancy rates will continue to improve in the coming quarters. That said, this can take HLT stock higher.
From a growth perspective, Hilton Worldwide is equally attractive. The company has approved 29,500 rooms for development during Q1 2020. The company has a total development pipeline of 405,000 rooms as of March 2020. This provides top-line growth visibility once the industry gets back to normalcy. Its important to note that 31% of the company’s development pipeline is in the Asia-Pacific. Focus on emerging markets is likely to help in sustaining long-term growth.
From a financial perspective, Hilton Worldwide reported cash and equivalents of $3.8 billion. A strong cash buffer would help the company navigate the current challenges. The company does have a leverage of 3.6. However, I would not be worried with no near-term debt maturities. Once growth is revived, cash flow is likely to be robust.
Collectively, these factors make HLT stock attractive. And with the market poised for some correction after a big rally, it’s a good time to accumulate the stock.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.