Perhaps more than any other industry, travel stocks have been decimated by the novel coronavirus, and the carnage hasn’t confined itself to any specific corner of the segment.
The damage incurred by travel stocks this year was widespread, tattering airlines, amusement park operators, casino companies, cruise lines and hotel firms, among others. So severe is the bloodbath wrought upon the travel and leisure industry by Covid-19 that fears remain some companies are vulnerable to bankruptcy.
Hertz (NYSE:HTZ), which had problems prior to the pandemic, is currently cruising Bankruptcy Boulevard. For other leisure companies, near- to medium-term recovery prospects hinge largely on a vaccine coming to market and the economy rapidly rebounding — a twofold scenario that may not materialize fast enough to appease skittish investors.
Here are 7 travel stocks banking on pent-up demand:
- Las Vegas Sands (NYSE:LVS)
- Wynn Resorts (NASDAQ:WYNN)
- Uber Technologies (NYSE:UBER)
- American Express (NYSE:AXP)
- Boyd Gaming (NYSE:BYD)
- Southwest Airlines (NYSE:LUV)
- Vista Outdoor (NYSE:VSTO)
The sector remains risky, but that just means investors need to be choosy before buying.
Las Vegas Sands (LVS)
The theme of pent-up demand isn’t confined to the U.S. It’s applicable in markets throughout, including China. The world’s second-largest spent a significant portion of the first half of the year shutdown because Covid-19 originated there.
This is relevant to Las Vegas Sands because Chinese gamblers are itching to get back to Macau, where LVS runs five integrated resorts. Sands also runs one of two gaming properties in Singapore and, combined, those two markets combine for roughly 85% of the companies revenue in a quarter in a normal operating environment.
Gaming industry analyst consensus is that Macau and Singapore will bounce back well before Las Vegas does. Add to that, things are starting to loosen up in the region. LVS’s Singapore resort reopened in early July and that country is forming a travel bubble with Malaysia, its most important external market for gamblers.
In China, there’s some loosening of previously restricted visas, which should facilitate a rebound in Macau gaming revenue in the back half of this year.
Wynn Resorts (WYNN)
Many of the same sentiments applicable to LVS are applicable to Wynn Resorts because the latter runs two gaming venues in Macau. The Chinese gaming territory is easily Wynn’s most important market, accounting for two-thirds or more of the operator’s revenue in any given quarter.
There, Wynn is more levered to VIPs, a demographic that’s been champing at the bit to return to the tables. Wynn stock recently got a lift on news that Guangdong province — the mainland region nearest to Macau — did away with its 14-day quarantine policy applying to travelers arriving from the gaming center.
Then late last month, Chinese authorities said academic, business and family visas for Macau travel could once again be issued. Those aren’t the all-important tourist visas, but they are steps in the right direction, and there’s talk Chinese tourist visa issuance could resume next month.
Bottom line: Wynn is the ultimate pent-up demand play even if that demand doesn’t pertain to its three domestic properties.
Uber Technologies (UBER)
All things considered, Uber’s year-to-date gain of nearly 5% isn’t all that bad. That gain shows the importance of the thriving food delivery business, which is clearly acting as an important backstop for the ride-hailing firm.
Plenty of Americans are embracing Uber Eats as their preferred platform for things like shelter-in-place date nights. However, Uber is also a pent-up demand play because, eventually, consumers will have more access to traditional entertainment options, such as bars, movie theaters, restaurants and more — the types of places many folks use Uber to get to.
Over the near-term, the Uber stock story boils down to mitigating per share losses and investors’ patience for growth being sourced via food delivery.
“While we believe revenues likely bottomed in April, we believe continued high COVID-19 case levels are likely to continue to weigh on rideshare demand throughout 2020 and into 2021,” said Raymond James analyst Aaron Kessler of ride hailing stocks. “We believe COVID-19 will remain a meaningful headwind either until there is an effective vaccine or caseload has dropped to minimal levels and consumers can return normal work and social activities.”
American Express (AXP)
American Express, a member of the Dow Jones Industrial Average, isn’t a direct play on travel in the vein of an airline or hotelier, but as the company’s recent second-quarter earnings report details, AXP is very much levered to travel trends.
The company’s travel leverage is twofold. First, it’s highly dependent on business travel, which is drying up as so many conferences and conventions are canceled or are moved online. Second, many of American Express personal cardholders are affluent individuals that, under normal circumstances do like to travel for leisure.
Compounding the company’s woes is that many of its clients, corporate and personal, travel internationally and with the recent spike in Covid-19 cases in the U.S., some countries aren’t welcoming American travelers.
Translation: it’s easy to see why AXP stock is lower by almost 25% year-to-date and one of the worst performers in the Dow. This redemption story may be longer-ranging than say Las Vegas Sands or Wynn, but patient investors may want to consider American Express before the world starts getting back to normal.
Boyd Gaming (BYD)
Another casino stock, Boyd Gaming is a much different beast than aforementioned peers Las Vegas Sands and Wynn. Boyd has no international exposure and runs a dozen gaming properties in Sin City, two traits that would appear to be not conducive to success in the current operating environment for casino operators.
However, investors should do themselves a favor and read deeper into the Boyd story. The company’s second-quarter earnings were significantly less worse than expected, buoyed by strength in its regional portfolio. These days, regionals are where its at for casino companies because the estimated recovery timeline for Sin City is being measured in years.
Part of the reason for that is Vegas is heavily dependent on air travel to deliver patrons. On the other hand, regional casinos, like the ones Boyd runs in the Midwest and the South, are drivable and rely mostly on local patrons.
More importantly, Boyd is reducing its cash burn rate while boosting operating margins, giving investors two more reasons to consider the stock.
Southwest Airlines (LUV)
One day doesn’t make a trend, but Southwest’s 2.23% gain on Aug. 3 underscores the correlations airlines share with coronavirus-related news. Confirming airlines’ status as a pent-up demand ideas, the U.S. Transportation Security Administration (TSA) said air travel bookings modestly rose following a two-week slump.
Bolstering the case for Southwest as a travel stock recovery play is that the carrier is one of the dominant names in shorter flights. Routes such as Southern California to Las Vegas or intra-Texas flights. Those are the type of trips eager travelers may be more inclined to embrace when Covid-19 abates rather than cross country or international flights.
Impressively, Southwest should be able to trim costs by $1 billion in 2021 and unlike many of its travel and leisure peers, the company is avoiding layoffs, at least for now.
Vista Outdoor (VSTO)
Vista Outdoor is frequently thought of as a gun stock, even though it’s not a firearms manufacturer. Rather, Vista firearms exposure comes by way of making ammunition and accessories such as rifle scopes.
Yet this is also a travel stock because the company makes an array of gear and products that are used for outdoor leisure activities, such as camping, golf and hunting. That trait makes Vista Outdoor a right now pent-up demand play because camping, fishing and the like are the type activities and trips folks can enjoy now. Those endeavors get them out of the house and often don’t require air travel.
It’s easy to think Vista is performing inline with other gun companies this year because of political speculation, but as noted above, there’s more to the story and in some ways, Vista is ideally positioned to capitalize on the restlessness shelter-in-place policies are causing.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.