News of Covid-19’s Delta variant has taken much of the wind out of travel stocks. Publicly-traded names in the travel sector have either pulled back, or plateaued, after their strong performance during the “vaccine recovery.”
Governments around the world have started to reinstate lockdowns and social distancing measures. So far stateside, we have yet to see a full encore of 2020 measures. But the U.S. has started to take precautions. This includes keeping its current travel restrictions as-is for now. Depending on how this latest outbreak plays out, a return to “lockdown mode” in America isn’t exactly off the table. The result if that does happen? An extension of the “return to normal” timeline, and the possibility of travel-related stocks giving up more of their “reopening” gains.
That being said, that isn’t the only way things could play out. With a majority of Americans believing Delta variant risks are overblown, it may be tough for federal and state authorities to reimpose last year’s restrictions. As CNBC’s Jim Cramer recently opined, a scenario where a combination of vaccines and infections could create a “sort of national pseudo herd immunity,” which could mean the U.S. gets over this latest outbreak much easier than the first one.
So, if the Delta variant of Covid-19 isn’t set to ruin the “reopening,” which travel stocks look like great opportunities right now? Consider these ten solid plays to keep on your radar:
- Bally’s (NYSE:BALY)
- Choice Hotels (NYSE:CHH)
- Century Casinos (NASDAQ:CNTY)
- Expedia (NASDAQ:EXPE)
- Host Hotels & Resorts (NASDAQ:HST)
- Southwest Airlines (NYSE:LUV)
- Spirit Airlines (NYSE:SAVE)
- Travelzoo (NASDAQ:TZOO)
- United Airlines (NASDAQ:UAL)
- Wyndham Hotels & Resorts (NYSE:WH)
Travel Stocks: Bally’s (BALY)
Like most casino stocks, shares in Bally’s (formerly Twin River Worldwide Holdings) wasn’t held down for long after the initial Covid-19 outbreak. Sure, its shares fell from around $30 per share, to single-digits, when the virus first hit the U.S. But it quickly recovered in the months that followed.
During this timeframe, the company took advantage of the headwinds, expanding its portfolio of land-based casinos, and adopting the Bally’s moniker. This, coupled with its expansion into i-gaming (online casinos and sportsbooks), and the “vaccine recovery,” enabled shares to start skyrocketing. Trading for around $25 per share in early November, by March it hit a high of $75.92 per share.
Since then, things of course have cooled. Even before the Delta variant news, shares sold off, as investors realized the company’s valuation had gotten out of hand. With this latest outbreak news, BALY stock is experiencing additional downward pressures. Yet, if you missed out on its first epic run, this may be the perfect time to enter a position, ahead of Delta variant fears possibly subsiding.
Its valuation may be slightly higher than that of similar casino names like Boyd Gaming (NYSE:BYD) and Penn National (NASDAQ:PENN). But it’s much cheaper valuation compared to larger peers like Caesars Entertainment (NASDAQ:CZR) and MGM Resorts International (NYSE:MGM). Add in ts growing exposure to i-gaming, coupled with its track record of making opportune acquisitions of casino properties, and this may be one of the best names to own in the gaming sector.
Choice Hotels (CHH)
As I wrote last year, CHH stock was more resilient than its peers in the hotel space. With its focus on “drive-to-leisure” markets, and its lower exposure to the business travel market, the franchisor’s portfolio of brands (such as Comfort Inn and Econo Lodge) saw fewer hurdles compared to higher-end brands such as Hyatt (NYSE:H) and Hilton (NYSE:HLT).
That’s what enabled shares to fully recover from their initial pandemic losses well before the November 2020 vaccine news. And it’s been what’s enabled the stock to trade at prices much higher than it did before the pandemic first made headlines. So, what’s next for Choice Hotels, if the Delta variant doesn’t lead to a repeat of 2020 and all that entailed?
Admittedly, like other hotel stocks, shares appear fully priced. Right now, CHH stock sports a forward price-to-earnings (P/E) ratio of 34.8x. There may be some multiple contraction risk, depending on how the inflation/interest rate situation plays out. This may mean more gradual gains from here, assuming today’s fears dissipate.
But if Choice Hotels sells off again before the Delta variant enters the rearview mirror? Buying this high-quality, well managed hospitality play on the pullback could be a solid opportunity.
Travel Stocks: Century Casinos (CNTY)
Century Casinos is another of the regional casino operators that saw its shares recover dramatically following the March 2020 “coronavirus crash.” At that time, shares sunk down from high single-digits, to well within penny stock levels.
But much like Bally’s and similar names, this small cap casino stock mounted an epic recovery. One that not only sent CNTY stock back to its pre-virus levels, but to prices substantially above that high-water mark. Delta variant fears have seen it sell off again. Possibly due to the company’s exposure to the cruise line industry.
As InvestorPlace’s Joel Baglole discussed back in April, along with its portfolio of land-based casinos in the U.S., Canada and the U.K., Century is also an operator of casinos aboard cruise ships. However, even if the Delta variant causes more trouble for the hard-hit cruise industry, it may not be more trouble for the company. According to its last 10-K (annual) filing, it has been in the process of winding down this segment, letting its existing concession agreements expire.
If the Delta variant ends up coming and going, without a repeat of lockdowns? As its operations continue getting back to normal, it’s earnings are set to improve in a big way by 2022. Trading for 9.9x next year’s earnings, consider CNTY stock one of the more reasonably priced travel stocks out there.
At first glance, travel booking stocks appear overheated. Even as they slide on Delta variant news. EXPE stock is no exception. Shares today trade for more than 40% above their pre-pandemic levels. If travel is again put on hold, names like this one are at a big risk of falling lower.
But if today’s fears are overblown? Despite appearing pricey, Expedia stock may have a greater runway than you think. If the current strong booking trends continue, the company may be set to top estimates in 2021 and 2022.
This could mean it generates earnings as much as $9.73 per share in 2022. Compared to its current stock price ($162.70), that appears downright reasonable. Granted, booming travel this year and the next (from pent up demand) could subside in 2023 and beyond. But as a Seeking Alpha commentator made the case back in May, the company has potential to grab market share in areas like vacation rentals, and in the international market.
Less pricey than it appears as first glance, don’t think you missed the boat with EXPE stock just because you didn’t buy it when it was trading at depressed prices. Instead, it may mean now’s the time to buy, as it pulls back slightly on renewed Covid fears.
Travel Stocks: Host Hotels & Resorts (HST)
Hotel REIT (real estate investment trust) Host Hotels was another of the hard-hit names that got back to pre-pandemic price levels following the vaccine rollout. Not only that, despite the recent worries, it has only seen a slight slide from its 52-week high.
So, why is HST stock an opportunity, if you’re looking to make a contrarian wager on the outcome of the Delta variant? In a recent article on travel stocks in Barron’s, Deutsche Bank analyst Chris Woronka made the case why it’s a bargain with long-term upside potential.
First, in terms of valuation, shares today trade in the middle of their historical range, on an EV/EBITDA basis. Second, with the REIT taking advantage of the continued headwinds, via a series of acquisitions accretive to earnings, its results could improve in a big way, once the recovery is fully complete.
To top it all off, once the current issues are off the table, it will likely return to paying out its quarterly dividend of 20 cents per share (80 cents annualized). Or, perhaps it will raise its dividend once it starts paying it out again. As it trades for $16 per share, down slightly from its high of $18.52 per share, consider HST stock as another way to bet that the “reopening” is still on track.
Southwest Airlines (LUV)
As seen from its latest quarterly earnings release, things have picked back up substantially for Southwest Airlines. It may have only reported positive earnings thanks to proceeds from the U.S. Federal Government’s airline relief program.
But with its load factor back up to nearly 83%, and the company reporting positive net income in the month of June, without the help of subsidies? It’s clear that the “pent up demand” thesis is playing out. This airline is still well on its way to recovery.
Of course, the latest Covid-19 variant could potentially get in the way of a full recovery happening. That’s why investors have pushed down this and other airline stocks since June. Since climbing up to above $60 per share, LUV stock today changes hands for around $51.15 per share. Still up big from its pandemic lows, is there enough possible upside from a continued recovery, to make up for the risk of a continued selloff, if the Delta variant situation worsens?
Yes. Challenges notwithstanding, Southwest is looking to aggressively pursue growth, coming out of, and after, the pandemic. This includes adding new destinations to its network, as well as increasing its connections with existing destinations. With its long-standing operational advantages, this airline remains one of the best ones out there to own for the long-haul.
Travel Stocks: Spirit Airlines (SAVE)
Buying Spirit Airlines is another way you can fade the recent Delta variant pessimism. Another hard-hit name that mounted a rapid stock price recovery from mid 2020 to early 2021, its pullback from just over $40 per share, to around $28 per share today, appears to be a bona-fide “buy the dip” situation.
At least, that’s the view of one investing commentator on Forbes.com. With its relatively solid (for an airline) balance sheet, SAVE stock looks primed to bounce back, assuming the the above-mentioned variant worries dissipate and the air travel sectors completes its recovery.
In general, low-cost carriers like this one may make for better airline plays than “old school” names such as American Airlines (NASDAQ:AAL). Less burdened by long-term obligations, and with more efficient cost structures, Spirit, along with names like Southwest, is in a much stronger position to get back to pre-pandemic levels of profitability, as well as grab additional market share from the legacy carriers.
If its upcoming earnings release (after the close July 28) can live up to the guidance it provided last quarter? SAVE stock may be able to jump start its recovery. Even as news about the Delta variant continues to dominate the headlines.
It’s not one of the most well-known. But TZOO stock is another name that has benefited from the “pent up demand” tailwind. Shares in the travel deal website operator have soared over the past twelve months. It’s up 145.6% over the past twelve months, and up 51.9% year-to-date. The question now is whether it has more room to climb. Or, if investors just looking at it today have already missed the boat.
Go with the former. Sure, after its epic comeback since the middle of last year, another triple-digit percentage rally may not be in the cards. But taking a look at analyst consensus for earnings in 2022, it’s clear this small cap stock has not yet run out of runway.
Estimates for earnings next year average around 92 cents per share. At today’s stock price (around $14.34 per share), shares trade at a forward P/E of 15.7x. With modest multiple expansion, shares may have room to bounce up to $20 per share, or even $25 per share, as the sentiment around travel stocks gets back to pre-Delta levels.
Based on its historic valuation multiples, this appears attainable. A more obscure name in the travel sector, but nevertheless an opportunity, if you’re bullish that the recovery is still well on track.
Travel Stocks: United Airlines (UAL)
Given how I made the case why low-cost carriers are the best airline stocks to buy, why am I including this legacy carrier on this list? Sure, it doesn’t expect to make a full recovery until 2023. Despite leisure travel quickly coming back, a comeback for business and international travel is still a work in progress.
But much of this is built on recent pessimism about when exactly an overall “return to normal” will happen. If the issues with the latest Covid-19 variant clear up, and worldwide travel is able to get back to pre-pandemic levels? UAL stock, which has pulled back more than 20% from its recovery high, may again resume its upward climb.
As of now, analyst estimates for 2022 profitability run the gamut from a loss of 6.57 per share, to earnings of $5.80 per share. If things get better rather than worse, sooner rather than later, and the most optimistic projections pan out? United Airlines shares may have a clear path back above the $60 per share level.
Admittedly, compared to the other names listed here, risk/return may be less optimal. If the Delta variant gets worse, and a full-on air travel recovery is again delayed? UAL stock may be at risk of falling back toward the depressed prices it fell to during the height of lockdowns. Keep it on your radar, but it may be best to wait for another price drop.
Wyndham Hotels & Resorts (WH)
Just like CHH stock, WH stock is another hospitality name that showed resilience during last year’s challenges. This franchisor of hotel brands, such as La Quinta, Ramada and Super 8, faced fewer challenges, given its focus on the budget-conscious leisure market.
As a result, shares got back to their pre-pandemic price levels by the start of 2021. By June, it was trading for as much as $77.96 per share. That was more than 30% above where it was before the virus first started to make headlines. With the Delta variant, shares have seen a slight move lower, to around $70.75 per share as of this writing.
Again, the play here may be similar to the aforementioned play with shares in Choice Hotels. At today’s valuation, Wyndham appears fully-priced (forward P/E of 30.3x). Earnings growth in 2022 of 37.1% may help to justify this rich multiple. If variant worries climb before they start to fade? You may be able to snap up this travel stock at a more optimal entry point.
If it experiences more downward pressure in the aftermath of its earnings release, consider this another of the high-quality travel stocks to pounce on.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.