The global travel and tourism industry went through one of the worst phases during the pandemic. Companies faced slumps in revenue and they drained financial resources in a quest for survival. Geopolitical tensions also impacted industry growth potential after the pandemic. However, the sector is crawling back to normalcy and travel stocks have been trending higher.
I believe the rally in travel and tourism stocks has just commenced. Reports indicate the industry is forecasted for full COVID recovery in 2024. That implies strong revenue growth for major travel and tourism players.
I must add that the industry outlook for the next 10 years is optimistic. I would like to hold some of the best travel stocks for the long term. To put things into perspective, the global tourism body expects the sector will contribute $15.5 trillion to the global economy by 2033.
Therefore, let’s talk about three travel stocks poised for a rally and also look attractive for the long term.
Royal Caribbean Cruises (RCL)
Royal Caribbean Cruises (NYSE:RCL) stock has surged over 100% year-to-date (YTD). I believe the rally in RCL stock is likely to be sustained for two reasons. First, RCL stock trades at a forward price-earnings ratio of 16, which is attractive.
Furthermore, the cruise industry revenue is expected to swell from $11.1 billion in 2022 to $21.1 billion this year. However, revenue will stay below 2019 levels. With estimates indicating double-digit industry growth through 2026, the outlook is bullish for cruise stocks.
Specific to Royal Caribbean, “demand for 2023 sailings has significantly exceeded expectations and bookings for 2024 sailings are up significantly versus all prior years at record prices.” Clearly, the outlook for the coming quarters is bright and as Royal Caribbean delivers strong numbers, the stock will trend higher.
I also expect continued improvement in credit metrics. For Q2 2023, the company repaid $1.6 billion in debt. An improving balance sheet is likely to support a stock re-rating.
Airbnb (ABNB)
Airbnb (NASDAQ:ABNB) is another name among travel stocks to buy that’s already in an uptrend. However, ABNB stock looks attractive even after a 67% rally YTD.
I believe Airbnb is a long-term cash flow machine and with a global presence, ample scope for growth. To put things into perspective, the company reported revenue of $2.5 billion for Q2 2023, an 18% increase on a year-on-year basis. For the same period, the company reported free cash flow (FCF) of $900 million. That implies an annualized FCF potential of close to $4 billion.
Coming to global presence, Airbnb reported 22% higher nights and experiences booked on a year-on-year basis in Latin America. Growth Year-over-year was 24% for Asia Pacific. I believe that emerging markets will be key growth drivers coupled with sustained upside in cross-border travel.
MakeMyTrip (MMYT)
MakeMyTrip (NASDAQ:MMYT) stock trended higher by 42% YTD. However, I believe the stock will continue to rally in the coming months. As an overview, MakeMyTrip is a provider of online travel solutions in India. The company claims to be the largest online travel company in the country. With the holiday season approaching, the company is well-positioned to benefit.
It’s worth noting that MakeMyTrip has been on a sustained recovery path since the pandemic. To put things into perspective, the company reported an operating loss of $18 million for the 2021 financial year. However, for the last financial year (FY23), MakeMyTrip reported an operating profit of $70.3 million.
It’s likely that profitability will continue to increase with the growing demand for travel and tourism in India. The country has a swelling middle class, which will support sustained growth. Importantly, as cash flows grow in the coming years, MMYT stock will be positioned to create immense value.
On the date of publication, Faisal Humayun did not hold (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.
