November meant good news for global citizens, businesses, governments, and investors hoping for a vaccine against the novel coronavirus. Pfizer (NYSE:PFE) and its partner BioNTech (NASDAQ:BNTX), as well as Moderna (NASDAQ:MRNA), have announced highly promising developments that have brought relief to many sectors in the markets. Therefore today, we will introduce eight travel stocks celebrating the positive vaccine news.
The potential arrival of a vaccine could mean a return to the “old normal” as far as social and group activities are concerned. Consumer confidence would likely improve, too. Following the bullish vaccine news, there has already been a market rotation, mostly into cyclical shares. Investors have in part left the “stay-at-home, work-from-home” trade and moved into the sectors, such as travel, energy and financial, that are likely to benefit from a potential vaccine in the coming months.
In 2019, the “total contribution of travel & tourism to global economy” was $9.25 trillion. Yet as the World Travel & Tourism Council (WTTC) cites, “The COVID-19 pandemic has seen the sector, as well as the world, greatly impacted.”
According to recent research by IBISWorld, “in 2020, industry revenue is expected to decline 8.9% over the year. The global outbreak is expected to have an enormous effect on all tourism-related industries.” For instance, Sanjay Nepal of the University of Waterloo, Canada highlights, “Communities around the world that are heavily dependant adventure tourism are particularly vulnerable as their livelihood is threatened in unprecedented ways.”
Thus many businesses and communities worldwide are ready to welcome travelers again. With that information, here are eight travel stocks that are eagerly eyeing the path to the end of the challenges caused by Covid-19:
- American Express (NYSE:AXP)
- Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY)
- ETFMG Travel Tech ETF (NYSEARCA:AWAY)
- Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA:PEJ)
- Lindblad Expeditions (NASDAQ:LIND)
- Sabre (NASDAQ:SABR)
- Trainline (OTCMKTS:TNLIY)
- U.S. Global Jets ETF (NYSEARCA:JETS)
Travel Stocks: American Express (AXP)
New York City-based American Express provides charge and credit card products as well as travel-related services both to individuals and businesses.
In late October, the group released third-quarter metrics. Net income was $1.1 billion, or $1.30 per share. A year ago, the numbers had been $1.8 billion, or $2.08 per share.
Although most investors intuitively think of American Express as a financial services company, it has a differentiated business model with exposure to travel and entertainment, too. The current low-interest environment has squeezed net margins. In addition, the decrease in travel and entertainment spending has hurt the company since the start of the pandemic.
Over 70% of pre-tax income comes from the U.S. Therefore, the company would welcome any substantial improvement in the U.S. economy.
AXP’s forward P/E and P/S ratios stand at 18 and 3.46, respectively. Since the start of November, the shares are up over 30%. Therefore, short-term profit-taking is possible. A potential decline toward $115 would make the risk/return profile more attractive.
Consumer Discretionary Select Sector SPDR Fund (XLY)
Expense Ratio: 0.13%, or $13 per $10,000 invested annually
Our next choice is an exchange-traded fund (ETF), i.e., the Consumer Discretionary Select Sector SPDR Fund. As the name implies, it is a bet on the consumer and thus is an indirect play on the travel sector. The fund started trading in 1998. Net assets are over $17 billion.
XLY, which has 61 holdings, tracks the Consumer Discretionary Select Sector Index. Close to 70% of the holdings are in the top ten businesses. As far as industries are concerned, funds are distributed among Internet & Direct Marketing Retail (27.57%), Specialty Retail (26.65%), and Hotels, Restaurants & Leisure (19.65%), among others.
Among travel stocks in the fund that could be of interest to InvestorPlace.com readers are Booking (NASDAQ:BKNG), Marriott International (NASDAQ:MAR), Hilton Worldwide (NYSE:HLT), Las Vegas Sands (NYSE:LVS), Expedia (NASDAQ:EXPE), Royal Caribbean Cruises (NYSE:RCL), and Carnival (NYSE:CCL), as well as several others.
The fund hit an all-time high on Dec. 1. Should you cash some of those paper profits now?
ETFMG Travel Tech ETF (AWAY)
Expense Ratio: 0.75%.
Our next discussion also focuses on an ETF, namely the ETFMG Travel Tech ETF, which started trading in the early weeks of 2020, before the pandemic hit our shores. As a result, the fund has somewhat of an “unlucky” inception timing. Although it has recovered since early spring, it is still down about 1% since inception.
AWAY has 27 holdings. The top 10 firms in the fund make up close to 47% of net assets of about $48 million. Uber Technologies (NYSE:UBER), U.K.-based On The Beach (OTCMKTS:OOBHF), Sabre, Expedia, and Lyft (NASDAQ:LYFT) are among the leading names in the EFT.
Closer inspection of all holdings shows the emphasis on technology. Therefore, it is a play on travel and transportation as much as technology. We’d look to buy the dips in the fund.
Invesco Dynamic Leisure and Entertainment ETF (PEJ)Expense Ratio: 0.64%
Our next fund, the Invesco Dynamic Leisure and Entertainment ETF, gives access to 32 leisure and entertainment firms. The fund has been trading since 2005.
Several travel- and tourism-related stocks that are included in the fund are Hilton Worldwide, Walt Disney (NYSE:DIS), Tripadvisor (NASDAQ:TRIP), and Churchill Downs (NASDAQ:CHDN). The fund also has well-known restaurant and entertainment groups as past of its holdings.
Year-to-date, PEJ is down over 16%. However, since November, the fund has increased close to 26%. Trailing P/E and P/B ratios are 13.01 and 6.09. A short-term decline toward $35 would offer a better risk/return ratio.
Lindblad Expeditions (LIND)
New York City-headquartered specialty cruise operator Lindblad Expeditions works in partnership with National Geographic. The group describes its mission as to “inspire people to explore and care about the planet. The organizations work in tandem to produce innovative marine expedition programs and to promote conservation and sustainable tourism around the world.”
In late October, it released Q3 results. The company’s monthly cash burn rate stands between $10 million and $15 million. Cruising is not expected to seriously step up for at least several more months.
Lindblad’s “Third quarter tour revenues decreased $100.0 million, or 99%, as compared to the same period in 2019. … Net loss available to stockholders for the third quarter was $27.4 million, $0.56 per diluted share, as compared with net loss available to stockholders of $0.5 million, $0.01 per diluted share, in the third quarter of 2019.”
Put another way, it was not a good report. However, the company had a great November, as the shares were up over 50%. Long-term investors may look to buy the dips, especially if there is a decline toward $11.
Southlake, Texas-headquartered Sabre provides software and services to the global travel industry. For example, in October it teamed up with Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google to “Develop Industry-First AI Technology for Travel” so that Sabre can better provide its customers with customized content.
In early November, Sabre released Q3 results. Revenue came at $278 million. A year ago, it had been $1 billion. Net loss of $312 million translated into diluted net loss of $1.07 per share. In Q3 2019, the comparable figures had been net income of $64 million and EPS of 23 cents.
Long-term investors may find better value if the price goes below $10. Sabre is likely to see improved top- and bottom-line figures in 2021 and reap the benefits of increased travel both domestically and internationally.
London, U.K.-headquartered Trainline is an online rail and coach (bus) travel platform that sells tickets to global travellers. The company describes its reach as, “We partner with more than 270 rail and coach companies across 45 countries, in Europe and Asia. Our broad range of partners mean we cover ~80% of EU rail and ~60% of coach routes in Europe.”
The group had its IPO in June 2019 and is now part of FTSE 250, the U.K.’s junior index for small- and mid-capitalization (cap) businesses.
In early November, it released half-year trading results. Net ticket sales and revenue declined 81% and 76%, respectively.
Despite the pandemic-related challenges, CEO Clare Gilmartin sounded optimistic for the future and said, “Looking ahead, our position as the digital innovator in the industry means we are well placed to recover quickly when lockdowns lift and market conditions improve, as demonstrated in the second quarter. We see no change to the long-term structural tailwinds for Trainline.”
Gilmartin was the former boss of eBay (NASDAQ:EBAY) in the U.K. and Europe.
Train travel in the U.K. and continental Europe is important and likely to see a fast recovery once travel restrictions are eased in 2021.
U.S. Global Jets ETF (JETS)
Expense Ratio: 0.6%
Our final discussion focuses on another exchange-traded fund, namely the U.S. Global Jets ETF. The fund provides access to the airline industry worldwide, including both global operators and manufacturers. It started trading in 2015 and has around $2.7 billion in assets.
Until this year, investors have usually been worried about the cyclical factors related to airlines. In other words, airline shares typically did well in strong economic times and declined when the economy was contracting.
Research led by Kawika Pierson of Willamette University, Salem, Oregon and, John Sterman of MIT, Sloan School of Management, Cambridge, Massachusetts, highlight, “Aggregate airline industry earnings have exhibited large amplitude cyclical behavior since deregulation in 1978.”
However, the pandemic meant unprecedented times for commercial airlines. Earlier in the year, both domestic and international air travel came to a halt. Although we have seen improved domestic passenger numbers over the past several months, global travel is still very limited.
JETS currently has 39 stocks. Close to 60% of the holdings are in the top 10 holdings. Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), United Airlines (NASDAQ:UAL) and American Airlines (NASDAQ:AAL) lead the names in the ETF. The fund would be a long-term bet in improved air traveler numbers both stateside and globally.
On the date of publication, Tezcan Gecgil has both long and short positions in Alphabet’s Google (NASDAQ:GOOG).
Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.