Thinking about travel stocks to sell may seem counterintuitive, with the summer season expected to heat things up for the travel industry. Despite the macroeconomic headwinds, analysts expect robust demand in the upcoming months. Additionally, travel companies have rebounded from the pandemic-led slowdown and are ready to spread their wings.
However, recent insights from Deloitte suggest caution. Planned discretionary spending remains weaker for the U.S. consumer while intentions for housing spending are climbing. Additionally, spending intentions for travel dipped last month but remained robust overall. Hence, the resilience in the travel space and the weakness in the economy could weigh down the anticipated growth and recovery of the travel sector in the short term.
Therefore, it becomes imperative for investors to consider the macroeconomic backdrop before making decisions. Though travel stocks are attractive because of their promising summer prospects, current economic signals support a more cautious approach.
Marriott International (MAR)
Shares of global hotel and hospitality chain Marriott International (NYSE:MAR) performed remarkably well last year. The stock gained north of 30%. However, the momentum hasn’t carried into 2024, with shares up just 3% year-to-date (YTD). While the bulls might blame the macro economy for the decline, its sluggish business dynamics are at play.
The company is struggling with soft growth in room revenues in the U.S., casting a shadow over its stock performance. It reported a modest 1.5% increase in revenue per available room (revPAR) in North America, starkly contrasting with the 11.1% growth from international markets. This disparity shows the uneven recovery in travel demand post-pandemic, with domestic travel lagging significantly.
Additionally, its first-quarter (Q1) results showed an 8% drop in operating income and a 25% decrease in net income. Furthermore, the hotel giant’s financial health raises major concerns, with its debt load climbing by 6.7% to $12.7 billion and its cash and cash equivalents at $400 million. This result suggests the firm holds only about 3.15 cents in cash for every dollar of debt, raising serious liquidity concerns.
Southwest Airlines (LUV)
Southwest Airlines (NYSE:LUV) thrived as the low-cost champion when the world opened up again following the pandemic. However, the landscape has shifted completely for the airliner, with rising labor costs and persistent inflation eating into its bottom-line. Its profitability margins are now trailing well behind their historical averages.
Moreover, its woes have been compounded by Boeing‘s (NYSE:BA) production delays, receiving only 20 jets this year instead of the projected 84. Hence, LUV stock has dipped over 3.5% year-to-date after a lackluster showing in 2023.
Consequently, analysts are much less upbeat about Southwest’s near-term upside potential. Argus downgraded its stock to a consensus ‘hold’ rating from ‘buy.’ Analyst John Staszak states that concerns over heightened employee costs and further delays in aircraft deliveries spurred the downgrade. Consequently, the research firm revised down earnings forecasts for the next couple of years, casting a shadow over Southwest’s prospects.
TripAdvisor (TRIP)
It has been a grueling few weeks for online travel review platform TripAdvisor (NASDAQ:TRIP), which saw its stock plummet more than 28% in the past month. Though its Q1 results offered respite, they were overshadowed by the firm’s withdrawal from potential acquisition discussions.
TRIP stock had rallied following the formation of a committee to explore acquisition offers. Consequently, it attracted massive interest from top players such as Apollo Global Management (NYSE:APO). However, the change of mind sparked a major reversal, pushing it close to its 52-week lows.
Moreover, the firm’s prospects are clouded by the fierce online travel market, which is getting even more competitive. Additionally, the firm has taken a strong hit from recent changes in Google’s search algorithms, weakening its market positioning. These setbacks place TripAdvisor in a precarious position, with the road to recovery looking more challenging. Investor confidence in the stock is low, which muffles its growth trajectory.
On the date of publication, Muslim Farooque 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
