ETF Managers Group, the people behind ETFMG Alternative Harvest ETF (NYSEARCA:MJ), launched the ETFMG Travel Tech ETF (NYSEARCA:AWAY) on Feb. 12, 2020, just as the novel coronavirus was spreading across the globe. Investing in travel stocks with a tech approach, AWAY is down 18% since inception.
It seems that not even tech-enabled travel stocks can catch a break from Covid-19.
However, the ETF’s recent performance — it was up 10% in August — suggests there is light at the end of the tunnel. According to ETF Managers Group, the global travel and tourism industry is one of the largest parts of our economy, generating 10.4% of the global gross domestic product (GDP).
AWAY plays off of that by investing in four main segments of the travel tech universe: travel bookings and reservations (45.1% weighting), ride-hailing (19.3%), travel price comparison (17.5%) and travel advice (18.2%).
- Accesso Technology Group (OTCMKTS:LOQPF)
- Amadeus IT Group (OTCMKTS:AMADF)
- Booking Holdings (NASDAQ:BKNG)
- Sabre (NASDAQ:SABR)
- Trainline (OTCMKTS:TNLIY)
- Trip.com (NASDAQ:TCOM)
- Uber (NYSE:UBER)
The ETF currently holds 28 travel stocks. I picked the seven that have a good chance of outperforming the overall markets over the next 12 to 24 months.
Travel Stocks to Buy: Accesso Technology Group (LOQPF)
Of the 28 travel stocks on AWAY’s list of holdings, Accesso is the lowest by weighting. I put this at the beginning because it is first alphabetically. I don’t necessarily think it’s the best bet of the seven.
Trading on the London Stock Exchange, Accesso has made the news recently because of its virtual queuing solution, LoQueue, which is being used by Parc Astérix, France’s second-largest theme park.
Free of charge, the Filomatrix virtual queuing platform helps get customers safely into the park.
“The virtual queuing platform adjusts to unpredictable elements, such as the weather, or the time taken to sanitise attraction between guests. The platform automatically updates visitors when it is appropriate to visit the attraction, enabling social distancing measures to be maintained at all times,” InterPark reported in late August.
These are the kind of innovations that Accesso specializes in. In 2019, the company’s virtual queuing technology allowed 38 million people to enter theme parks virtually. Covid-19 is going to blow the roof off that number once people gain the confidence to return en masse.
Down 50% year to date, aggressive investors might want to take a flyer on Accesso.
Amadeus IT Group (AMADF)
Amadeus is a leader in connecting the various stakeholders in the travel industry, including travel providers, travel sellers and travelers themselves. Its technology platforms allow for the real-time search, pricing, booking, ticketing and processing solutions for everyone involved.
Its global distribution system segment generates approximately 56% of its overall revenue. The remaining 44% of sales are from its IT solutions segment, which helps travel companies use their technology more efficiently.
As you can imagine, Amadeus’ business has been dramatically reduced due to Covid-19.
In the first six months of 2020, the company’s revenues were down 43% compared to last year, while its adjusted profit was down 89%. Like most travel companies, liquidity has been a concern for investors. At the end of June, it had liquidity of 4.1 billion euros, including 2.4 billion in cash and debt facilities, to make up the remainder of the amount.
Between 2019 and 2021, it’s on course to reduce its annual fixed costs by 550 million euros.
Despite the terrible numbers in 2020, Amadeus’ stock is down by only 26%. Starting in June, it began to see improved bookings. It continues to sign up new customers to the Amadeus platform. Like most of the stocks on this list, it’s going to take time to rebuild its bookings.
When that happens, there’s nowhere for its stock to go but up.
Travel Stocks: Booking Holdings (BKNG)
In April, I recommended seven travel stocks to buy once the world starts to recover from Covid-19. Some of the choices suited aggressive investors comfortable with risk. One of them was Booking, the people behind Pricline.com, Booking.com, OpenTable and Kayak.
At the time, I suggested that the company’s second-quarter results would be “significantly lower” than in the same quarter a year earlier. On Aug. 6, Booking reported its Q2 2020 results. Revenues fell 84% to $630 million. It went from an operating profit of $1.25 billion in Q2 2019 to a loss of $484 million in this year’s second quarter.
“We faced a challenging second quarter and continue to face challenges due to the impact of the COVID-19 pandemic on travel demand. However, we have witnessed improvement in booking trends since April, which is encouraging” said CEO Glenn Fogel.
Booking’s loss was lower than expected, prompting Morgan Stanley analyst Brian Nowak to raise his target price by 18% to $1,900. Down just 7% year to date, that says a lot about investor confidence.
Over the past 10 years it has an annualized total return of 20.2%, 40% higher than the U.S. markets as a whole.
Of all the stocks on the list, this is my No. 1 one pick for the long term.
Sabre plays second fiddle to Amadeus IT. As a result, SABR stock is down 66% year to date, more than double the loss of its larger rival.
In late July, InvestorPlace contributor Vince Martin, put the kibosh on investors buying Sabre in hopes of a travel-stock recovery.
“Its reach extends to hotels and rental cars as well, perhaps providing some protection from continued pressure on air traffic. Meanwhile, Sabre has slashed costs in recent months, while an asset-light model avoids some of the problems faced by the likes of airlines and rental car operators,” Martin wrote on July 28.
Perhaps my colleague’s got some Canadian blood in him because he was much too polite. He finished with a laundry list of concerns, including large amounts of debt and a turnaround that is on pause due to Covid-19.
If you’re going to buy one of Amadeus and Sabre, the former is the obvious choice. However, down almost 70%, possible regression to the mean would suggest SABR stock is the better buy from a speculative point of view.
Like Accesso, SABR is best for aggressive investors.
Travel Stocks: Trainline (TNLIY)
If you want to book any train and bus travel in Europe, Trainline is the place to go. Its platform allows you to search for the best price for your trip and then book the tickets. Easy peasy.
The ticketing platform went public on June 22, 2019, at 350 pence. KKR (NYSE:KKR), Trainline’s private equity owner at the time, saw the shares list at a four-fold return on its investment. Since then, its share price has gotten as high as 559.58 pence in February and as low as 187.20 pence in the March correction.
Trainline CEO Clare Gilmartin recently sold 3.2 million British pounds of its stock after management’s 12-month lockup expired.
Train travel is a part of living in Europe. I can’t imagine that United Kingdom and European Union residents are going to forego train travel permanently.
Trainline stock has gone sideways since its IPO and down quite a bit from its May highs, now would be an excellent time to consider a small position.
Trip.com is the largest online travel agency in China. Formerly known as Ctrip, the company embraced a new name in October 2019.
Just how large is this company? In 2019, it had $5.1 billion in sales and $723 million in operating profits. Sales grew 15% over 2018.
Last September, I recommended TCOM stock as one of 10 companies I thought would ride China’s emerging wealth. A year later, it is down 9% due in large part to coronavirus travel restrictions.
In June, InvestorPlace’s David Moadel suggested that TripAdvisor (NASDAQ:TRIP) should come back stronger than ever after Covid-19 goes away. It just so happens that TCOM owns 5.7% of TRIP stock. If he’s right, that is another benefit to owning China’s largest player.
Since going public in 2003, Trip.com has delivered compound annual growth of 17.1% for shareholders over the past 17 years. Hopefully with a new name, it can outperform over the next 17 years.
Travel Stocks: Uber (UBER)
Uber is the fourth-largest position in the AWAY ETF, with a weighting of 6%.
The last time I wrote about the ride-hailing app was in early June. At the time, I said that it should commit 100% to electric vehicles for its fleet. This was not an original idea. I borrowed it from a letter to the editor of The Mercury News.
“The letter to the editor suggested that ride-hailing services should be required to operate electric vehicles. The author reminded readers that the trucking industry has been financing the purchase of electric trucks for years, so any cost issues related to drivers having to own electric vehicles isn’t a legitimate concern,” I wrote at the time.
I don’t think there is any question that Tesla (NASDAQ:TSLA) intends to deliver a fleet of self-driving electric vehicles to service the public’s insatiable demand for ride-hailing. Even during Covid-19.
So, the big risk in investing in UBER stock is that Tesla rains on its parade and steals a considerable amount of its leading market share.
In mid-August, InvestorPlace’s Nicolas Chahine argued that Uber belongs in every long-term portfolio because it’s got a competent management team that will continue to execute.
I’ve seen plenty of good ideas fail because of bad management. While it has got to make money for me to be excited about investing, I do believe that aggressive tech investors should follow my colleague’s suggestion.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.