After last month’s selloff driven by the novel coronavirus, many stocks remain far below their 52-week highs. And not just more vulnerable companies. High-quality names like Hilton Worldwide (NYSE:HLT), too. With HLT stock down more than 38% since February, it’s obvious investors still believe the hotel giant is not out of the woods yet.
However, Wall Street is overestimating how long this crisis will last. Sure, things may be tough for a few months. But, based on the current valuation, investors keep pricing in an extended world of hurt for the hotel franchisor.
Recovery will come sooner than you think. And with that, travel will pick up, quickly. Whether traveling for business or pleasure, things will rebound once the pandemic is in the rearview mirror. Once that happens, Hilton stock will bounce back to past price levels.
So, why buy now? To put it simply, now’s the “darkest before the dawn” moment. Sure, we’ve seen some recovery. But, fear and uncertainty remain to plague the markets. Don’t use this as an excuse to stay on the sidelines. Now’s the time to buy high-quality names like HLT stock, before they bounce back to past highs.
Hilton Will Survive Today’s Headwinds
It’s no surprise the past two months have been tough for the hotel business. And that’s the case for Hilton. The chain saw their RevPAR (revenue per available room) decline 56% in the month of March. I don’t expect April numbers to be much stronger.
This should be no surprise. Around 16% of its hotels have been temporarily closed. The hotels that do remain open face a tough time filling rooms. No surprise there, given that business travel has come to a standstill, and leisure travelers are having second thoughts about their summer vacation plans.
But we’re not buying HLT stock based on this month’s, or even next month’s results. We’re looking at a longer time horizon. Once “stay-at-home” orders are lifted, and tourist spots like Las Vegas open up again, expect things to return to normal sooner than “doom and gloom” headlines indicate.
As I wrote earlier this month, I’m surely not the only one with cabin fever right now. If anything, the “stay at home” economy has millions yearning to take a vacation once again.
In short, the underlying demand remains. Once the floodgates open up for business-as-usual, expect things to rebound with a vengeance.
Yet, things may not be equal across all travel-related stocks. So, what makes Hilton a stronger buy than other opportunities?
Why I Choose Hilton Stock Above Other Hotel Plays
There are many ways to bet on travel demand returning to normal. Why choose Hilton as your way to play this?
Firstly, you need an opportunity that offers the potential upside (share price rebounding to past highs), with minimal downside risk (shares continue to tumble due to losses). In this situation, a hotel franchisor like Hilton is going to be a better buy than say, a hotel real estate investment trust like Host Hotels and Resorts (NYSE:HST).
Yes, Hilton is going to see some affects to its bottom line due to the pandemic. But their losses are limited compared to those of hotel REITs like Host. This means hotel franchisor stocks offer you a better proposition.
Secondly, if we are considering hotel franchisors over hotel REITs, we need to find the “best-in-class” play. The criteria? Financial strength, as well as solid growth fundamentals. Considering these factors, Hilton is a stronger play than its main rival, Marriott (NASDAQ:MAR).
This hotel industry analyst agrees, pointing out Hilton’s strengths relative to Marriott in a recent research note. Not only with regards to balance sheet (Hilton has stronger liquidity than its rival), but their “growth and cash flow profile” as well.
Facing relatively less impact from the coronavirus, while at the same time offering potential stock price upside when things turnaround, Hilton stock offers the best of both worlds. Consider it your best option to bet on an inevitable travel economy recovery.
Bottom Line on Hilton
Despite its relative strengths to other hotel names in the wake of coronavirus, Hilton shares remain far below prior price levels. Yes, shares have recovered since late March. Since then, the stock has rallied from prices below $45 per share to around $70 per share today. Yet, this is far below where it was trading back in February (above $110 per share).
As shares recover, and Wall Street starts pricing in a travel economy recovery, don’t expect this discount to last. Buy Hilton stock now, before a business travel and tourism rebound sends shares back to prior highs.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.