Betting on car rental stocks at this point may seem like a pure gamble. The novel coronavirus pandemic has been devastating for the sector, and we have already had our first casualty, Hertz (NYSE:HTZ). The car rental giant recently filed for bankruptcy.
Now I know what you may be thinking. It’s best to stay away from car rental stocks at this point. But as the 18th-century British nobleman Baron Rothschild once said, “the time to buy is when there’s blood in the streets.” Now granted, that quote is a tad extreme. However, you get the gist of it – buy shares when they offer an attractive entry point.
In that respect, several car rental stocks are trading at a good bargain. Plus, people are now vacationing in mass numbers. Strict stay at home regulations has led to a lot of pent-up demand. With Covid-19 cases dropping, people are looking forward to taking trips, especially to the countryside.
Flights may look a bit scary due to proximity you share with so many people. Hence, cars are becoming the preferred mode of transport for vacationers at this time.
That’s why it’s time to look at three stocks that are benefiting from this new trend:
Car Rental Stocks: Avis Budget (CAR)
Headquartered in New Jersey, Avis Budget Group is the parent holding company of several car rental companies. CAR stock remains an attractively valued investment, trading at 0.44x forward price-sales. That is despite the good news circling CAR stock in recent months along with favorable external tailwinds.
Avis recorded a 9% year-on-year gain in the period from January to February. But beyond that, the pandemic has done a number on its financial results. Both the first and second quarters reaffirmed the belief that it will be a long hard road moving forward for the company, but there are also several positives that you should note.
The company scraped off $1 billion in expenses and has reduced its fleet size by over 100,000 vehicles. Meanwhile, as public transit usage drops, used car sales are spiking, and we are already seeing travel and accommodation making a comeback; all positive news for the company.
Bottom line: Avis is a well-run company that is trading at decent valuations. The company is also benefiting from external tailwinds that put it in good stead moving into Q3. That makes it one of the top car rental stocks on the market.
When ridesharing applications like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) arrived on the scene, many car rental companies found it hard to cope, Hertz, being chief among them. However, HyreCar has an exciting business model that doesn’t compete with these ride-hailing applications.
Instead, the company is facilitating drivers attached to these companies by providing rideshare drivers the option to borrow cars from one another. Since the company does not have a fleet of cars itself, it does not suffer from the business dynamics that negatively impacted other rental car companies like Hertz.
The recently concluded quarter confirmed that the company had performed exceedingly well, even during the pandemic. Weekly rental days are now trending towards 22,000 per week, where they were 20,600 per week before the pandemic.
You can chalk that up to a lot of things. Gig-based work is increasing due to the ravaging effect of the virus on the economy and the ease of getting into something like ridesharing. Although we steadily see employment numbers climb up once again, we are still quite a way off from normalcy. So, long term trends for the company are positive. And that’s reflected in the markets.
Year-to-date, HYRE stock has been on a tear and is up more than 42%. That doesn’t mean there isn’t a lot of upside left. Shares are still trading under $4 a pop, very low considering the company’s strong fundamentals. HYRE stock remains a gem that has so far flown under the radar. You would want to buy it now when you have an attractive entry point.
Readers will find the next entry a bit out of left field but bear with me here. Travelzoo started as a newsletter that would tell you about the best travel and accommodation deals on offer. The company also advertised car rental promos through its newsletter.
From those humble beginnings, the newsletter has grown to have 28 million subscribers. The global Internet media company now also has a website and mobile app.
In exchange for the advertisement of its product in the newsletter, the company charges a commission-based fee. Due to Covid-19, fees have naturally tumbled, but due to the asset-light model the company operates, the slowdown will not hurt TZOO stock as much as some other companies on this list. Two-thirds of the company’s sales and marketing expenses consist of online advertising. These costs can easily be scaled down.
In another significant development, Travelzoo has closed down its Asian unit. The venture was an unprofitable one for the company, and it makes sense to shut it down at a time when sales are already falling in favorable geographies. It also shows a commitment to keep costs down in the current environment.
At the moment, TZOO stock trades for $8 per share. Although that is significantly higher than the 52-week low $3.04, it still trades lower than a high of $13.80 per share recorded over the same period. The stock has always traded at high multiples due to its business model. Hence, grabbing shares at discounted rates is a proposition too good to let go.
Disclosure: On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.