It’s undeniable that travel stocks are in much better position now than they were at the beginning of 2021. The Covid-19 vaccines have been shown to sharply limit hospitalization and death. Additionally, new, highly effective, therapies against the disease have been developed by Pfizer (NYSE:PFE) and Merck (NYSE:MRK).
Meanwhile, many if not most of the governments that had leveled the harshest restrictions against their citizens in an effort to combat the pandemic have recently backed down. For example, Nevada ended its mask mandate on Feb. 10, while England earlier this month removed all of its restrictions.
Finally, U.S. government officials who made few, if any, upbeat statements in the past have recently started to change their tune. In that category are CDC Director Rochelle Walensky and White House Medical Adviser Dr. Anthony Fauci.
Taken together, these developments and other, similar changes have helped greatly boosted the demand for travel. And that trend is likely to continue boosting travel stocks much further this year.
Still, I’m not saying that the sector is risk-free. It still faces threats, such as a new subvariant that’s starting to circulate in America. Still, early clinical data does not indicate that this subvariant is more severe than the original omicron variant.
What’s more, I believe that most governments have realized that lockdowns are not worthwhile, while most healthy, vaccinated individuals no longer feel very threatened by the virus. Consequently, travel stocks are likely to continue to rally for the rest of 2022.
With that all in mind, here are four of the best travel stocks to buy as folks start traveling again:
- Expedia (NASDAQ:EXPE)
- MGM Resorts (NYSE:MGM)
- Marriott (NASDAQ:MAR)
- Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA:PEJ).
Travel Stocks To Buy: Expedia (EXPE)
The company’s fourth-quarter results, reported on Feb. 10, indicated that it’s really turning the corner. Its earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding certain items, came in at $479 million, higher than any other Q4 in its history. What’s more, its net income was a quite strong $276 million.
On the valuation front, the shares are trading at 30 times analysts’ average 2022 earnings per share (EPS) estimate. That’s not an overly demanding valuation for a company, which, as its CEO, Peter Kern, indicated in a statement on Feb. 10, is benefiting profusely from a strong travel recovery and looks poised to continue to do so.
“Notably, the travel industry and traveling public prove more resilient with each passing wave, and we continue to expect a solid overall recovery in 2022, barring a change in the trajectory of the virus.” And: “As we put more of the pandemic behind us, we focus on a brighter year ahead,” Kern said.
MGM Resorts (MGM)
New, positive catalysts and signs continue to emerge for the casino operator, which is also a part owner of online betting company BetMGM,
As I mentioned in my introduction, earlier this month, Nevada lifted its mask mandates, making MGM’s Las Vegas casinos much more appealing for gamblers and increasing the likelihood that more business travelers will start staying in MGM’s hotels in the city.
Also, very encouragingly, on Feb. 14, MGM and IAC (NASDAQ:IAC) announced that they would each buy “4.5M shares of MGM Resorts’ common stock from Corvex Management LP,” Seeking Alpha reported. The move suggests that MGM and IAC — whose chairman is the longtime, highly successful entertainment-sector executive Barry Diller — have great confidence in MGM stock. Their share purchase, in turn, has meaningfully increased my bullishness on MGM.
As I reported in a recent, previous column, on Feb. 10, MGM reported stronger-than-expected Q4 results, while Citi was very bullish on MGM stock in the wake of its results. Finally, BetMGM’s sales jumped 500% in 2021 versus 2020.
Travel Stocks To Buy: Marriott (MAR)
Like MGM, Marriott reported strong Q4 results in February. The company’s revenue per available room, or RevPAR, soared an incredible 125% YOY, and was down just 19% versus the same period in 2019.
The hotel operator’s EPS last quarter, excluding certain items, came in at a robust $1.30, as it reported adjusted net income of $430 million.
Importantly, Marriott reported that it was benefiting from demand increases among business travelers. Given the company’s expansive upper-scale hotel portfolio, it’s very well-positioned to benefit both from increased business travel and the very strong position of wealthy individuals and businesses.
Showing confidence in its outlook, Marriott said that it plans to increase its rooms total by a net 3.5% – 4%. According to Marketwatch, MAR stock is trading at a reasonable forward P/E ratio, based on analysts’ average 2023 EPS estimate, of 31
Invesco Dynamic Leisure and Entertainment ETF (PEJ)
This exchange traded fund (ETF) gives investors exposure to a wide range of travel stocks that are likely to benefit from the continued easing of the pandemic. Its largest holding is Live Nation Entertainment (NYSE:LYV), which specializes in selling tickets to live events in general and concerts in particular. In the spring and summer in particular, the pent-up demand for such events is likely to be very strong.
Its second-largest holding is McDonald’s (NYSE:MCD), whose strengthening brand and marketing prowess I’ve long admired. As families and single people start going out to eat more around the world, McDonald’s should be a major beneficiary of that trend. Plus, Carl Icahn’s recent involvement with the company should provide MCD stock with a positive catalyst.
Rounding out the ETF’s top five securities are Marriott, Booking Holdings (NYSE:BKNG) and Expedia. As I noted earlier, Marriott and Expedia did very well in Q4, and their success looks poised to continue.
As of this writing, Booking Holdings had not yet reported its Q4 results. But the company, which, like Expedia, is an online travel agency, looks well-positioned. Providing evidence for that assertion, RBC Capital upgraded BKNG stock to “Outperform,” citing its rising profitability,” and “minimal exposure to the subtle direct booking trend our U.S. property manager checks are detecting.”
The firm’s price target was $2,700, while the shares closed at $2,616 on Feb. 18. Additionally, at the very end of last year, Booking CEO Glenn Fogel, responded to questions about whether thousands of cancelled flights would hurt travel demand: “I’m not concerned about a lack of demand,” and added that the easing of restrictions by governments always results in meaningfully more travel.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.