As families and friends gather for the holidays at the end of the year, travel stocks typically get increased attention from investors. And this year, there is plenty of pent-up demand for the industry. After all, travel spending stateside plunged by 42% year-over-year (YOY) in 2020. Similarly, international travel spending fell by 76%, while business travel spending decreased 70%.
Yet, as a result of increasing travel demand in recent months, investors have recently turned more bullish on travel and tourism stocks. For instance, the Dow Jones U.S. Travel & Tourism index has been improving since late summer. It is up 3.6% in the past 12 months. However, by comparison, the S&P 500 index returned more than 28% in the same period.
Now that many countries have rolled out Covid-19 vaccines and eased travel restrictions, industry metrics are improving. For instance, Hospitality Net reports that in line with developments in the broader industry, “hotel bookings are only accelerating. Eleven countries on the World Hotel Index are now surpassing their pre-pandemic booking volumes, while a further six sit above 90%.”
Meanwhile, Bain & Company expects “air travel demand in Asia to pick up as China rebounds after Covid-19 lockdowns curbed air traffic … In Europe, the travel recovery has flattened since the summer, although we’re projecting slight improvement … The US’s reopening to vaccinated international travelers this month should also contribute to increased global air travel.”
On the other hand, a resurgence of Covid-19 cases around the globe could mean difficult days ahead for travel stocks. Bad pandemic news has recently raised concerns that the reopening may not hold as the travel industry hopes. Therefore, investors will need to monitor travel and coronavirus news from all corners of the globe.
Our travel stocks for today include a diverse list of renowned companies boasting strong brand recognition and a loyal customer base. With that information, here are seven travel stocks that could generate lucrative returns for long-term investors:
- Airbnb (NASDAQ:ABNB)
- Booking (NASDAQ:BKNG)
- Defiance Hotel, Airline, and Cruise ETF (NYSEARCA:CRUZ)
- Delta Air Lines (NYSE:DAL)
- Hilton Worldwide (NYSE:HLT)
- Marriott International (NASDAQ:MAR)
- United Airlines (NASDAQ:UAL)
Travel Stocks: Airbnb (ABNB)
52 week range: $121.50 – $219.94
As the largest accommodation platform worldwide, Airbnb needs little introduction. Its portal connects more than 4 million hosts with global guests. Despite the initial decline in booking numbers during the pandemic, Airbnb now benefits from the remote work movement. A large number of individuals are taking advantage of remote work and renting for longer periods away from their homes.
Airbnb released third-quarter results on Nov. 4. Revenue increased 67% YOY and 36% from Q3 2019 to $2.2 billion. Meanwhile, net income went up by 280% YOY to $834 million, or $1.22 per diluted share, up from $219 million in the prior-year quarter. The company generated free cash flow of $518 million. Cash and equivalents ended the period at $6 billion.
Strong demand during the summer increased profit margins for the quarter. Wall Street expects the recent reopening of international travel to contribute further to top-line growth.
ABNB stock trades around $178, up 20% year-to-date (YTD). Given the significant long-term growth opportunity, shares command a premium in the travel industry. They currently trade at 151 times forward earnings and 21 times trailing sales. Interested readers could regard $170 as a better entry point.
52 week range: $1,860.73 – $2,687.29
Our next stock, Booking, is the largest online travel agency by revenue in the world. Its portals offer travel and restaurant reservation services through several brands, including Booking.com, Priceline.com and OpenTable.
Booking announced Q3 results on Nov. 3. Revenue increased 77% YOY to $4.68 billion. Non-GAAP net income more than tripled YOY to $1.6 billion, or $37.70 per diluted share, up from $504 million, or $12.27 per diluted share, in the prior-year quarter. Free cash flow stood at $2.3 billion, and cash and equivalents ended the period at $11.6 billion.
On the results, CEO Glenn Fogel remarked, “We are pleased to report another quarter of sequential improvement in room night trends, which was primarily driven by better results in Europe. Revenue in our seasonally strongest third quarter was $4.7 billion, which was more than double the amount of revenue we recognized in the second quarter of 2021.”
Booking is well-positioned to benefit from the easing of travel restrictions. However, a new Covid-19 wave in Europe and the omicron variant might lead to a significant decline in year-end demand.
At present, BKNG stock hovers around $2,150, down 4% YTD. Shares are trading at 24.6 times forward earnings and 10.5 times trailing sales. Its recent decline from prices above $2,250 increased the margin of safety for investors looking to buy shares.
Travel Stocks: Defiance Hotel, Airline and Cruise ETF (CRUZ)
52-Week Range: $19.34 – $25.09
Expense Ratio: 0.45% per year
Our next discussion is on an exchange-traded fund (ETF), namely the Defiance’s Hotel, Airline and Cruise ETF. The fund is a pure recovery play in the global travel industry, giving access to a wide range of businesses.
CRUZ, which holds 53 stocks, is a new ETF that began trading in June 2021. Net assets under management totaled $14 million as of Sept. 30. In other words, it is small fund.
Roughly 54% of the holdings are in CRUZ’s top ten stocks. Among the leading names on the roster are Marriott International, Hilton Worldwide, Delta Air Lines, Ryanair (NASDAQ:RYAAY) and Carnival (NYSE:CCL).
CRUZ is down about 19% since inception in early summer. Buy-and-hold investors could consider opening a position at current levels around $20.
Delta Air Lines (DAL)
52 week range: $34.60 – $52.28
With a network of 300 destinations in more than 50 countries, Atlanta-based Delta Air Lines is a leading global airline. As more passengers have become comfortable with flying, DAL has seen a considerable improvement in its fundamentals.
Delta reported third-quarter results in mid-October. Adjusted revenue was $8.3 billion, showing a decline of 34% from the same period in 2019. Net income came in at $1.2 billion, or $1.89 per diluted share. The airline finished Q3 at $15.8 billion in liquidity.
On the metrics, CEO Ed Bastian said, “Our September quarter marked an important milestone in our recovery, with our first quarterly profit since the start of the pandemic … While demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter.”
Management now anticipates a sequential increase in Q4 revenue, in part thanks to the increase in international booking. But high fuel prices, the latest pandemic surge in Europe and the new Covid variant are likely to steal the glitter of the holiday season.
Yet declines in its share price could create an attractive opportunity to buy DAL stock. It hovers at $36 after hitting a 52-week low on Friday, down 31% from its high in March. Shares are trading at 9.5 times forward earnings and 1.04 times trailing sales.
Travel Stocks: Hilton Worldwide (HLT)
52 week range: $98.57 – $154.40
McLean, Virginia-based Hilton Worldwide is one of the most important names in hospitality. The company offers more than a million rooms globally. It has been increasing market share with global independent hotels seeking affiliation.
Hilton released Q3 2021 results on Oct. 27. Revenue increased 87% YOY to $1.75 billion. Net income came in at $241 million, or 86 cents per diluted share, compared to a net loss of $79 million, or 29 cents loss per diluted share, a year ago. Cash and equivalents ended the quarter at $1.4 billion.
After the announcement, CEO Christopher J. Nassetta stated, “We are pleased with our third quarter results which continue to reflect recovery from the adverse impact of the COVID-19 pandemic … Overall, we remain confident in a strong recovery in global tourism in the months and years ahead.”
HLT shares have surged 25% since the beginning of the year and currently trade for slightly less than $140. As a result, the stock is currently trading at a premium valuation of almost 30 times forward earnings and 7.9 times trailing sales. A potential decline toward $138 would offer a better entry point for long-term investors.
Marriott International (MAR)
52 week range: $115.50 – $171.68
Our next stock, Marriott International, is also one of the world’s largest hotel operators, with more than 7,600 locations globally. Over the years, the hospitality group has especially benefited from growth in luxury travel markets both stateside and worldwide.
Marriott released Q3 results on Nov. 3. Revenue increased 75% YOY to $3.95 billion. Net income totaled $220 million, or 67 cents per diluted share, up from $100 million, or 31 cents per diluted share, in the prior-year period. Marriott’s net debt stood at $9 billion at the end of the period.
CEO Anthony Capuano said, “Third quarter occupancy topped 58 percent, driven largely by continued strength in leisure demand. Average daily rate, which was only 4 percent below 2019 levels for the quarter, has been recovering much more quickly than in the past two downturns.”
Like other stock we have discussed so far, Marriott has benefited from the global recovery in the industry. However, a resurgence of Covid-19 cases could dampen its prospects for the quarter ahead.
MAR shares have gained 16.5% since the start of the year and trades for about $155 per share. The stock is trading at 26.8 times forward earnings and 4.2 times trailing sales. Interested readers could wait for a pullback to $150 or even less.
Travel Stocks: United Airlines (UAL)
52 week range: $39.17 – $63.70
Chicago, Illinois-based United Airlines is among the top global airlines by scheduled revenue passenger miles (RPM). This is an important measure that, according to FRED, shows “the volume of air passenger transportation. A revenue passenger-mile is equal to one paying passenger carried one mile.”
Management issued Q3 results in late October. The airline generated $7.8 billion of revenue, down 32% from the third quarter of 2019. United reported net profit of $473 million, or $1.44 per share, down 54% from $1.02 billion, or $3.99 per share, in Q3 2019. Cash and equivalents ended the quarter at $19.3 billion.
“The recovery was delayed by the Delta variant, but the United team remains focused on our long-term vision – and not getting sidetracked by near-term volatility – meaning we’re solidly on track to achieve the targets we set for 2022,” said CEO Scott Kirby.
Despite various headwinds that are likely to affect the industry in the coming weeks, management is still bullish about long-term prospects. United especially boasts an extensive network throughout Asia, and is relying on improving passenger numbers in the region.
UAL stock is essentially flat for the year, exchanging hands for nearly $43. Shares are trading at 11.8 times forward earnings and only 0.7 times trailing sales. Potential investors could consider buying around these levels.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil 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. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.