3 travel stocks to buy as coronavirus cases decline rapidly
For February, investors are focused on equity market volatility, US Federal Reserve rate hikes and a slowing economy. However, an equally important development is taking place in the background that will have major implications for some companies, particularly travel stocks: the omicron wave of the Covid-19 variant has peaked and is now receding rapidly.
The seven-day rolling average of new cases peaked just above 800,000 and since February 2, cases have decreased to 378,015. There are other positives about omicron like it is milder than previous strains. It also has a very low hospitalization and mortality rate for those vaccinated and/or boosted. Additionally, there is some hope that all detected and undetected omicron infections could bring us closer to “herd immunity.”
The big winner from these developments is the travel industry. Travel stocks have sold off in recent weeks with the Defiance Hotel, Airline and Cruise ETF (NYSEARC:CRAZ) down about 12.6% since the second week of November, partly due to omicron and also due to general market weakness. Therefore, investors should consider stocks that will benefit from the recovery in travel volumes.
My top three choices are:
Travel Stocks to Buy: Wyndham (WH) Hotels
Wyndham Hotels is one of the largest hotel companies in the world. Currently, there are more than 9,000 hotels in more than 80 countries. Wyndham Hotels operates in two segments: hotel management and hotel franchising. The Hotel Management segment offers management services for full and limited service hotels. The Hotel Franchise segment licenses its lodging brands and provides related services to third-party hotel owners.
Clearly, Wyndham Hotels will be one of the biggest beneficiaries of a rebound in travel. This is evident in the company’s revenues in the first and second quarters of 2021, surpassing its 2019 revenue figures before growth slowed in the third quarter (Q3) due to the delta variant.
Coming out of the pandemic, Wyndham Hotels is in a much stronger position as many smaller hotels have been closed, while others are operating below full capacity due to difficulties finding labor . As a multi-billion dollar multinational corporation, Wyndham Hotels is positioned to absorb these inflationary pressures and grow market share to take advantage of the inevitable improved operating conditions expected to emerge in the spring and winter. summer of this year.
Beyond improving macro conditions, we can also see that Wyndham Hotels is one of the best operators in the segment by looking at its recent earnings report. In the third quarter, its net revenue increased 37% to $463 million. Its adjusted earnings per share (EPS) increased by approximately 275% compared to the third quarter of 2020.
The company also pays a dividend yield of 1.5% and has 12.8% profit marginswhich are both above the industry average and the average stock in the S&P500. For the fourth quarter, analysts expect revenue of $384 million and EPS of $0.54 per share.
Wyndham Hotels has an overall rating of B, which translates to Buy in POWR ratings. B-rated stocks posted an average annual return of 20.1%, exceeding the average annual return of the S&P 500 of 7.8%. The stock has an A for Growth, which isn’t surprising given its double-digit revenue and earnings growth. Next year, analysts expect an additional 10% revenue growth. Click on here for more information on Wyndham Hotel’s POWR ratings, including component ratings for Value and Momentum.
Choice Hotels International (CHH)
Choice Hotels operates in two segments: hotel franchise; and Business and others. The company franchises lodging properties and markets cloud-based property management software for non-franchise hoteliers.
His brands include Comfort Inn, Comfort Suites, Quality Inn, Clarion, Clarion Pointe, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, WoodSpring Suites, Cambria Hotels and Ascend Hotel Collection. Since last year, the company has had an impressive network of more than 7,000 hotels with 570,000 rooms located in more than 40 countries.
Another feature is its asset-light models since it is 100% franchisor. Additionally, its software segment is a long-term growth engine that other hotel operators have become dependent on to run and manage their businesses. For investors, it offers higher margins and more growth. As this becomes an increasing share of revenue, multiples should increase.
Currently, hotel occupancy rates are approximately 15% below 2019 levels. As this increases, Choice Hotels will be a beneficiary. However, there is great regional variability, with California seeing occupancy levels 40% lower, while cities in Florida are down 2% to 5%. Choice Hotels escapes this risk due to the global and diverse nature of its business.
Choice Hotel’s POWR ratings also reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. POWR ratings rate stocks on 118 different factors, each with its own weighting.
Choice Hotels has an A rating for quality, which is consistent with having the highest markups of any publicly traded hotel. The company’s B rating for growth is due to growth in its software business, a secular source of growth, while cyclical trends are also supportive. Click on here to see the full POWR ratings of Choice hotels.
Travel stocks to buy: Travelzoo (TZOO)
Travelzoo offers travel, entertainment and local deals from businesses around the world. The Company’s publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20 email newsletter and a Newsflash email alert service.
Travelzoo’s business has obviously been crushed by the pandemic, so it should be seen as a high-rise way to profit from a travel recovery. Currently, the company may be at an inflection point, as evidenced by its recent earnings report, which showed a 14% year-over-year increase in consolidated revenue.
More encouraging is the improvement in its operations. Revenues remain about 35% below pre-pandemic levels, but EPS is already higher. This bodes well for continued earnings expansion in the months ahead. Next quarter, analysts estimate revenue at $18.5 million for the fourth quarter, indicating a 48% increase. The EPS estimate of $0.17 is more than double last year’s $0.06 per share.
TZOO has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. A-rated stocks posted an average annual return of 31.1%, which compares favorably to the S&P 500’s average annual return of 8%.
In terms of component ratings, the stock has strong ratings across the board, including a value rating of B. This is consistent with its forward price-to-earnings (P/E) ratio of 6.68. Click on here if you want to see the rest of TZOO’s component grades, including Growth and Momentum.
As of the date of publication, Jaimini Desai does not have (neither directly nor indirectly) a position in any of the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Jaimini Desai has been a financial writer and journalist for nearly a decade. He has helped countless investors take advantage of some of the hottest growth trends. His previous experience includes writing for Investopedia, Seeking Alpha and MT Newswires. He is chief growth strategist for StockNews.com and editor of the POWR Growth and POWR Stocks Under $10 newsletters.