Since the onset of the pandemic, the $9 trillion travel industry has been hard-hit, in particular hotel stocks. Restrictions in countries across the globe left people confined to their homes for several months this spring.
However, with lockdowns lifted and the start of the busiest travel season of the year, experts believe that travel is likely to see a sharp rebound in the coming months. While some travelers will stick to domestic destinations, close to home, others have the ability to venture across the globe.
Here are 3 hotel stocks to buy as tourism rebounds:
While tourism revenue is unlikely to reach pre-pandemic levels, hotels around the world are staffing up to welcome the influx of summer tourists. Nevertheless, as people celebrate the return to some level of normalcy this summer, the hotel industry is likely to make a major comeback.
Hotel Stocks to Buy: MGM Resorts (MGM)
MGM Resorts was a rising favorite among investors given its portfolio of high-profile properties, but the novel coronavirus has been nothing but bad news for the hotel industry. However, this narrative is likely to change with re-emergence of travel across the globe, and the company’s stock shows major upside potential for investors.
MGM casinos are one of the stock’s largest revenue drivers but with doors shut for the foreseeable future, the company’s financials have seen better days. Despite a bleak future, MGM is confident that the healthy cash reserve on its balance sheet will serve as a lifeboat in the coming months.
The company stated that the cash burn totaled $270 million during each month of closure. While this is likely to rip a hole in the company’s revenue numbers, the $5.3 billion in cash on its balance sheet is expected to cover expenses well into 2021.
In addition to a healthy balance sheet, MGM is also a major player in the world of online sports betting — a market said to be worth over $450 billion in the U.S. This means that even if MGM is unlikely to see hotel-bookings resurge to pre-pandemic levels, its online-gaming segment could be a huge boon for revenue.
Finally, MGM’s geographic presence is an important element in the future growth of its stock. China, a major travel hub in Asia, has decided to lower restrictions on people traveling from Macau, a huge location for MGM resorts. The company’s Chief Executive Bill Hornbuckle is optimistic about MGM’s future in this region and believes its rebound in China will be swift.
With the ease of travel restrictions across the globe and the growth of the online sports betting market in the U.S, an investment in MGM stock is definitely worth your time.
Hilton Hotel (HLT)
Travel restrictions have dimmed revenue numbers for industry giants like Hilton but with the easement of lockdown measures across the globe, experts believe hotel occupancy will rise in the coming months. Hilton stock shed more than 30% of its value since the onset of the pandemic, but the travel industry rebound has restored investor confidence in this hotel stock.
On June 22, Barclays placed its bets on the recovery of the travel industry and upgraded Hilton stock. The firm believed that the hotel’s stock price was not a good reflection of the improving demand for domestic travel and raised the price target from $92 to $105.
While travel recovery in the U.S is hard to bet on right now, analyst Anthony Powell says this is the perfect time to buy into the hotel industry stock dip. He argues that a year from now, the travel industry will be in a much better position and investors should jump on the road to recovery while prices remain low.
There is truth to this sentiment because the lockdown has created a lot of pent-up demand for travel in the U.S and abroad. As economies reopen, stimulus checks and the ease of restrictions could create an instant rebound in the travel industry. For Hilton, the hotel chain’s large global footprint in this industry could mean better days ahead as we approach the busiest travel season of the year.
Buy into this hotel stock while prices are low so you can benefit from high returns in the coming months.
Marriott International (MAR)
Another hotel stock that’s high on analysts’ recovery list is Marriott. The global hotel chain was hit hard by the pandemic, and its stock price fell more than 30% in the past year. However, the company is on the path to recovery as travel picks up worldwide.
Marriott’s competitive advantage over other hotels in North America is its large global presence. As countries approach various phases of reopening, Marriott is likely to see hotel occupancy rates go up.
This upturn is most visible in Asia and Europe, among the first regions to impose lockdowns. Marriott’s foothold in these places will be a boon for company revenue in the coming months.
Keeping with the rising optimism in Marriott’s future, Barclays upgraded the price target on the stock from $82 to $90. Analysts believe the stock is priced too low and not an accurate reflection of the projected travel and tourism in the coming months.
Marriott CEO Arne Sorenson strongly believes in the hotel’s ability to rise from the ashes. In an interview with Forbes, the CEO stated that when travel does return it will, “come back stronger than ever,” although a full recovery is only likely beyond 2021.
Marriott has already reopened its doors in China, an encouraging sign for investors as domestic travel picks resumes, to be followed by international. These early indicators will shape the way forward as the hotel chain reopens across the globe.
Marriott’s strong global presence puts the company in a great position to benefit from the mini-boom of domestic travel. While the company’s recovery period is still unclear, this hotel stock presents a great opportunity for long-term investors.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.