Wall Street investors have definitely gotten more optimistic about the prospects of travel stocks lately. Of course, the key reason is the rollout of new vaccines for Covid-19. While there have been problems with the distribution, it does look like the situation is starting to improve. Plus, the new Joe Biden administration has made this process a major priority.
But in the meantime, there is quite a bit of pent-up demand for travel. This was evident in the traffic volumes for airlines in the past few months. For example, on Nov. 29, the U.S. Transportation Security Administration (TSA) reported the most people through airport checkpoints — about 1.17 million people — since the start of the pandemic, according to a report from CNN. And that number was beat again on Dec. 27 (1.28 million) and again on Jan. 3 (1.32 million).
So, even with the rally in travel stocks, there still seems to be some interesting investment opportunities here. Let’s take at look at seven that stand out:
- Booking Holdings (NASDAQ:BKNG)
- Allegiant Travel (NASDAQ:ALGT)
- Disney (NYSE:DIS)
- Wynn Resorts (NASDAQ:WYNN)
- Extended Stay America (NASDAQ:STAY)
- Carnival (NYSE:CCL)
- Uber (NYSE:UBER)
Travel Stocks to Buy: Booking Holdings (BKNG)
When it comes to online bookings for travel, Booking Holdings is the global leader. The company has more than 29 million listings across over 220 countries. Its brands include Booking.com, Priceline, Kayak, Rentalcars.com and more.
When the Covid-19 pandemic hit, Booking was aggressive in raising substantial amounts of capital. The goal was to have enough liquidity for a couple years — assuming no revenues. The company also cut back on costs, with a reduction goal of 25% of the global workforce.
As a result of these actions, the balance sheet for BKNG stock is rock solid. In fact, since late March, the company’s cash balance actually jumped by $4 billion to $11.2 billion as of Sept. 30, making it one of the more secure travel stocks.
But even with the cutbacks, the company has continued to invest in R&D and new innovations. One of the most promising initiatives is its “connected trip vision.” The idea is to provide for a seamless customer experience that is bolstered by a sophisticated payments systems. This is something that should help lower costs but also improve overall conversion and renewal rates — driving more growth on the top line.
Allegiant Travel (ALGT)
It could easily take a few years for the air travel market to get back to pre-pandemic levels. The main reason is that business travel will probably remain depressed. After all, companies have been able to adapt to virtual sales and conferences, such as with technologies like Zoom (NASDAQ:ZM).
But this does not mean there are not opportunities with airline travel stocks. In fact, a good strategy is to look at those carriers that are based primarily on leisure and vacation travel.
Allegiant Travel is a great pick in this sense. Founded in 1997, the company is a nonstop operator for domestic travel. Its network includes 520 routes and an emphasis on leisure destinations.
What’s more, according to the latest travel report, there are encouraging signs of improvement. At the end of December, Allegiant’s load factors for the peak hit “nearly 60%,” which is “the best since the onset of the pandemic.” Plus, the latest quarter also saw positive cash flows, with cash balance at $709.8 million.
Finally, the last advantage for ALGT stock is its discount strategy. Given the weak economy, there will be demand for budget-friendly ticket prices once travel kicks fully back into gear.
When it comes to travel stocks, Disney may be one of the names with the most pent-up demand. It seems like a no-brainer that — when the company’s theme parks, resorts and cruises are fully open post-pandemic — there will be a major surge in revenues.
True, Wall Street has been factoring this into DIS stock. Since March, the shares have gone from around $85 to about $170. The company’s market capitalization is at $310.8 billion.
However, there should be more upside. The main reason? The synergies this name has with its Disney+ streaming service. Although the launch of the platform was only about a year ago, there are currently 86.8 million subscribers as of Dec. 10 — and counting.
In fact, according to Disney, its streaming platform’s user base is forecast to hit between 230 million to 260 million by 2024. And that could be a conservative estimate.
All in all, with the theme parks in full operation, there will be significant cross-selling opportunities for the streaming platform. This will mean that Disney will have a substantial high-margin recurring stream but also closer connections with its customers.
Wynn Resorts (WYNN)
Since late October, shares of WYNN stock have gone from around $72 to $106. However, this pick of the travel stocks is still well off its 52-week high of $137.58.
For this company, the main driver of its success is its business in Macau, China, which typically accounts for about two-thirds of overall revenues. On that front, it does look like 2021 will see a strong rebound. But on top of that, with so much pent-up travel demand, Las Vegas also looks poised for growth as well.
Yet the real excitement for WYNN stock could come from the expansion of online gambling this year, which has been spurred by the pandemic. While the company has been somewhat of a laggard, it does look like it is now starting to ramp things up. Recently Wynn added its WynnBET sports betting app to seven states, up from two. There was also a licensing partnership for the app with Elite Casino Resorts announced, which is a top resort operator in Iowa.
Extended Stay America (STAY)
When it comes to hotel travel stocks, Extended Stay America had one of the best relative performances during the pandemic. That’s really a testament to its strong business model.
For instance, for the last nine months of 2020, revenues were only off about 16% for the company, which operates over 600 hotels across the country. Those results are even better than that of Airbnb (NASDAQ:ABNB). Extended Stay has also remained profitable and cash flow positive.
So why the resiliency? Because of the longer-term arrangements for customers, revenues for STAY are usually more stable. Another advantage is that the company has a strong sales platform, with a robust website and long-standing corporate relationships.
But the momentum for STAY stock is likely to continue. Because of the company’s strong fundamentals and low-cost franchise model, Extended Stay has continued to invest in expanding its footprint.
As should be no surprise, the latest quarterly report for Carnival showed continued challenges. For instance, the company announced a hefty $2.2 billion net loss in its preliminary financial information for Q4. For comparison, in the same period a year ago, the company had made a profit of $423 million.
However, CCL is not going to run out of money. Investors should consider that the company says it has enough liquidity to survive this year — even if revenues are zero. In fact, it has $9.5 billion in the bank.
So, if anything, the second half of this year should see a nice rise in bookings as travel numbers — and travel stocks — begin to rise. Let’s face it, cruises can be a great way to de-stress. The experience is luxurious and full of amenities like spas. All in all, these are the kinds of things that many people will want to do after the pandemic fades.
As InvestorPlace’s Ian Cooper puts it, “the worst-case appears to be priced into the stock. In short, CCL stock may be a solid contrarian bet at its current prices.”
Last on my list of travel stocks is Uber. The latest quarter for this company showed that its ridesharing business continues to suffer. For example, gross bookings plunged by 53% on a year-over-year (YOY) basis. According to the Wall Street Journal, though, “that was better than the previous quarter, when rides were down 75%.”
But there was another silver-lining in the company’s report: Uber’s food delivery segment. This part of the company has been a nice growth engine this year and there was a boost from its merger with Postmates. While it is a small part of the overall revenue mix, that development is a plus.
The biggest bright spot for the company, though, is the passage of Proposition 22 in California — a critical development. The passage of Prop 22 essentially means that Uber does not have to treat its drivers as full-time employees entitled to benefits.
As for UBER stock, it has had a strong rally since late October, going from $33.41 at the end of the month to $53.44 today. But this may not be the end of the rally. As the dominant ridesharing operator with a robust food-delivery business, the company is nicely positioned to benefit from the return of travel activity this year.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.