SPECIAL REPORT The Top 7 Stocks for 2024

3 Close-to-Home Recreation Stocks to Buy on Weakness

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  • Last month, the Fed reported that “revenge travel” appears to be largely over. That should be positive for some recreation stocks.
  • Dave & Busters Entertainment (PLAY): PLAY appeals to both children and adults and its marketing initiatives are likely to bear fruit.
  • Topgolf Callaway Brands (MODG): MODG offers affordable golf options.
  • Restaurant Brands (QSR): QSR is well positioned to benefit from the trend of staying close to home.
recreation stocks - 3 Close-to-Home Recreation Stocks to Buy on Weakness

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In line with my thesis expressed in multiple columns predicting that travel trends would weaken, the Fed recently reported that the “revenge travel” phenomenon ended in many parts of the country. That moniker refers to the horde of Americans traveling a great deal after staying home for so long during the pandemic. In its “Beige Book” report on the economy released in September, the Reserve stated that “tourism activity” was “peaking or even slowing” in much of the country, CNN reported.

The Fed’s report came after a few airlines, including Delta (NYSE:DAL) and Southwest Airlines (NYSE:LUV), cut their financial guidance, providing another signal that travel trends are indeed weakening. Ultimately, with the labor market still strong and the economy continuing to grow rapidly, I believe the termination of that type of travel will be positive for companies providing recreation options close to consumers’ homes, such as amusement parks and restaurants. That’s because, with Americans spending much less on flights and hotels, they’ll have much more ability to use their still-ample funds to purchase goods and services from nearby recreation providers. Here are three recreation stocks well-positioned to benefit from these circumstances.

Dave & Busters Entertainment (PLAY)

Dave & Buster's (PLAY) logo on a window
Source: Jeff Bukowski/Shutterstock.com

Dave & Busters Entertainment (NASDAQ:PLAY) owns and operates arcades that feature video games and other activities, such as Skee-Ball and air hockey. It also owns restaurants usually located next to its arcades.

Also noteworthy is that Dave & Busters is fairly unique among entertainment options because it’s very attractive for both children and adults. And I’m encouraged by the fact that PLAY has invested in building a “marketing technology infrastructure” and is launching an extensive digital marketing initiative. Such projects often yield excellent results.

On Sept. 6, Dave & Busters reported strong second-quarter results as its top line jumped 16% versus the same period a year earlier, and its earnings per share, excluding certain items, came in at 94 cents, up from 85 cents in Q2 of 2022.

PLAY stock has a very low forward price-earnings ratio of 8.9.

Topgolf Callaway Brands (MODG)

a man golfing on a golf course
Source: sattahipbeach/Shutterstock.com

Topgolf Callaway Brands (NYSE:MODG) Topgolf unit operates locations that offer golf ranges, driving ranges, miniature golf courses and restaurants. The other part of the company’s business sells equipment and apparel used in (you guessed it) golf.

Like Dave & Busters, Topgolf provides entertainment options the whole family can enjoy. My wife and I recently visited a Topgolf venue in Dallas; for a reasonable, combined total of about $65, we played a long miniature golf course and tried our hands at the driving range for about a half hour.

The Callaway portion of the business will benefit from primarily catering to wealthy individuals not greatly affected by inflation.

In the first six months of 2023, the company’s top line jumped 8.9% versus the same period a year earlier. Its EBITDA, excluding certain items, fell by 3.6% year-over-year during the same period to $363.5 million. But falling inflation should push its profits higher going forward.

MODG stock has a reasonable forward price-earnings ratio of 17.5.

Restaurant Brands (QSR)

A photo of a Burger King light-up sign outside a Burger King restaurant representing QSR stock.
Source: Savvapanf Photo / Shutterstock.com

Restaurant Brands’ (NYSE:QSR) Burger King is a low-cost, recreational option for working-class and middle-class families. At the same time, Canadian coffee chain Tim Hortons offers its coffee at various price points, appealing to a similar group of consumers.

Investment bank Loop Capital recently upgraded its rating on QSR stock to Buy from Hold. After conducting surveys, the bank estimated the company’s same-store sales had jumped a hefty 8.5% to 9%, above analysts’ mean estimate of 7.7%. Loop increased its price target on the shares to $81 from $77.

Analysts, on average, expect QSR’s earnings per share to climb to $3.46 next year, up from $3.14 in 2022. The shares are changing hands for a low forward price-earnings ratio of 13.

On the date of publication, Larry Ramer 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.


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