There is a common expression that patience is a virtue. Many investors will have their patience tested in the coming weeks and months. Many stocks are dead in the water right now. Before we know how robust an economic turnaround will be, the nation has to get to the other side of the coronavirus.
The problem is that nobody knows exactly when that will be. And one reason for that is that recovery is going to be a state-by-state, household-by-household decision. Plus, it’s hard to determine what “normal” will be like without an actual vaccine.
Having said that, it’s more likely than not that the economy will reopen sooner rather than later. We may be wearing masks, foregoing handshakes and hugs, and otherwise socially distancing while getting back to a routine. And that includes traveling.
Some of the most beaten-down stocks are from the travel industry. Entire sectors of our economy including airlines, hotels, and casinos are facing multiple quarters of extremely low revenue.
But at some point, there will be a vaccine and life will go on. And when it does, some oversold travel stocks will come roaring back. In this presentation, we look at six travel stocks that you can buy and hold.
Quick Links
- Booking Holdings
- Marriott
- Hilton International
- Southwest Airlines
- Spirit Airlines
- Eldorado Resorts
#1 - Booking Holdings (NASDAQ:BKNG)
One of the arguments against buying shares of Booking Holdings (NASDAQ:BKNG) is that the stock may not be as much of a bargain since it only fell about 35% at its low point. However, a better argument may be that Booking only had about $1.6 billion of prepaid bookings prior to the pandemic. That was significantly less than peers such as Expedia (NASDAQ:EXPE) and Airbnb. Less prepaid bookings means less money to refund to consumers.
There is some speculation that a prolonged travel slump may make it more difficult for Booking to meet some 2021 debt obligations. However, forecasting what the economy may be like 18 months from now is a fool’s errand. In the short term, Booking looks has a strong cash position. At the end of 2019, the company had $7.3 billion in cash and marketable securities. And unlike other travel companies, Booking is not facing the issue of airplanes that are sitting idle or entire hotels sitting empty.
According to SunTrust Robinson Humphrey analyst Naved Khan, Booking’s low fixed-cost model and recent cost-cutting initiatives could allow the company to survive an entire year with no revenue. It certainly should allow the company the ability to run at zero cash burn if revenue drops 50% to 60%.
And Booking also represents some light at the end of the tunnel for other reasons. The company’s CEO, Glenn Fogel was diagnosed with Covid-19, the disease caused by the coronavirus, in late March. However, Fogel was asymptomatic and appears to have recovered and was able to carry on with his duties while in the 14-day window of the virus progression.
About Booking
Booking Holdings Inc, formerly The Priceline Group Inc, is a provider of travel and restaurant online reservation and related services. The Company, through its online travel companies (OTCs), connects consumers wishing to make travel reservations with providers of travel services across the world. It offers consumers an array of accommodation reservations (including hotels, bed and breakfasts, hostels, apartments, vacation rentals and other properties) through its Booking.com, priceline.com and agoda.com brands.
Read More - Current Price
- $5,048.59
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $4,909.90 (2.7% Downside)
#2 - Marriott (NASDAQ:MAR)
It was going to be a brutal earnings season. But it really hurts when you have to be one of the first companies to report. Marriott (NASDAQ:MAR) was one of those companies and the preliminary numbers it provided for the first quarter were gruesome. The “highlights” such as they were are a 23% drop in revenue per available room (RevPAR) with a 60% drop in RevPAR just in the month of March.
Marriott stock initially rose on a forecast that, while grim, seemed to be in-line and perhaps even less bad than expected. But the stock has since struggled to hold those gains and is still sitting on a 40% loss in 2020. In the last two weeks, five analysts have offered opinions on MAR stock. Although only one of those analysts gave the stock a positive report (raising their price target), the consensus price target among those five analysts has the stock around $86 per share.
Of particular interest to prospective investors is the company’s dividend. Marriott has increased its dividend every year for the last 9 years. The company did issue a quarterly dividend on March 31, 2020. The company’s next dividend is scheduled for May.
Like many travel stocks investors will be watching closely to see if Marriott suspends its dividend. However, the company pays out only 32% of its earnings as a dividend so a cut in the dividend may be more likely than an outright suspension of the dividend.
The hotel chain still has 25% of its 7,300 properties closed due to the novel coronavirus pandemic.
About Marriott International
Marriott International, Inc engages in operating, franchising, and licensing hotel, residential, timeshare, and other lodging properties worldwide. It operates its properties under the JW Marriott, The Ritz-Carlton, The Luxury Collection, W Hotels, St. Regis, EDITION, Bvlgari, Marriott Hotels, Sheraton, Westin, Autograph Collection, Renaissance Hotels, Le Méridien, Delta Hotels by Marriott, Tribute Portfolio, Gaylord Hotels, Design Hotels, Marriott Executive Apartments, Apartments by Marriott Bonvoy, Courtyard by Marriott, Fairfield by Marriott, Residence Inn by Marriott, SpringHill Suites by Marriott, Four Points by Sheraton, TownePlace Suites by Marriott, Aloft Hotels, AC Hotels by Marriott, Moxy Hotels, Element Hotels, Protea Hotels by Marriott, City Express by Marriott, and St.
Read More - Current Price
- $283.96
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 14 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $266.25 (6.2% Downside)
#3 - Hilton International (NYSE:HLT)
If you’re looking for travel stocks to buy at the moment, you can do worse than look at the companies that had strong balance sheets prior to the pandemic. Well-run companies tend to bounce back better when hit with adversity. And that’s a solid argument for Hilton International (NYSE:HLT).
This was a thought echoed by Gina Sanchez, CEO of Chantico Global, who gave an interview in late March in which she commended the company for its strong balance sheet. One reason for Sanchez’s optimism is the belief in two things.
First, that there the United States is indeed seeing the peak of the novel coronavirus cases in mid-April as forecast. And second, that as the economy begins to reopen, business travel will rebound faster than recreational travel. As Sanchez noted, “I think that you’re going to see a lot of pent-up plans that need to happen at some point soon.”
This idea of “betting on the country” was also expressed by hedge fund manager, Bill Ackman, who expressed, “If you can buy Hilton at $60 when it was trading at $120, it’s going to be a bargain.”
After hitting a low around $55, a stock price that chopped off nearly half of the stock’s opening price in 2020, HLT stock is starting to recover. Part of the reason for that is because investors approve of the company’s plans to cut “non-essential” costs. These measures included suspending its share buyback program and its dividend payouts. Additionally, CEO Christopher Nassetta will not take any salary for the remainder of 2020 and the executive committee will take 50% pay cuts across the board until the pandemic abates.
Stock #6 is giving investors a great entry point
About Hilton Worldwide
Hilton Worldwide Holdings Inc, a hospitality company, engages in managing, franchising, owning, and leasing hotels and resorts. It operates through two segments, Management and Franchise, and Ownership. The company engages in the hotel management and licensing of its brands. It operates luxury hotels under the Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts, and Conrad Hotels & Resorts brand; lifestyle hotels under the Canopy by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Tempo by Hilton, and Motto by Hilton brand; full service hotels under the Signia by Hilton, Hilton Hotels & Resorts, and DoubleTree by Hilton brand; service hotels under the Hilton Garden Inn, Hampton by Hilton, and Tru by Hilton brand; all-suite hotels under the Embassy Suites by Hilton, Homewood Suites by Hilton, and Home2 Suites by Hilton brand; and economy hotel under the Spark by Hilton brand, as well as Hilton Grand Vacations.
Read More - Current Price
- $249.42
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 11 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $232.65 (6.7% Downside)
#4 - Southwest Airlines (NYSE:LUV)
When the economy began to go into lockdown back in March, Southwest Airlines (NYSE:LUV) was trying to find a bottom. At the time, the CARES program was taking shape and it appeared that the airlines were in line to receive some of the government’s stimulus.
However, that didn’t happen as quickly as first anticipated. In fact, as more information was released and it appeared that any stimulus funds the airlines received might come with odious strings attached, the stock continued to decline.
But news that Southwest is one of approximately ten carriers to reach an agreement with the government sets the company to receive $3.2 billion in direct support as well as a $1 billion loan. In return, Southwest along with the other carriers will issue warrants to the government for a portion of its total equity. The company also had to pledge to not layoff any of its workforce prior to September 30.
Reading the tea leaves, it’s likely that the government is intending to have the economy up and running before the fall. Of course, like many things surrounding this virus there is no guarantee that will happen. And even if it does, it’s impossible to predict consumer sentiment. And more importantly, with the economy assuredly heading for a recession of some severity, will consumers be able to afford a flight no matter how discounted the fare is.
Either way, the injection of capital gives Southwest a longer runway. And considering that it was in a better position than some airlines prior to the pandemic, which should count for something.
About Southwest Airlines
Southwest Airlines Co operates as a passenger airline company that provides scheduled air transportation services in the United States and near-international markets. As of December 31, 2023, the company operated a total fleet of 817 Boeing 737 aircraft; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as ten near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.
Read More - Current Price
- $33.28
- Consensus Rating
- Reduce
- Ratings Breakdown
- 3 Buy Ratings, 11 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $31.37 (5.7% Downside)
#5 - Spirit Airlines (NYSE:SAVE)
If you’re interested in a stock that is more “under the radar”, Spirit Airlines (NASDAQ:SAVE) may be a savvy alternative. The argument against SAVE stock is that it tends to be volatile and the company has a debt-to-asset ratio of 35% which is high even for the airline industry. And the ratio has increased by over 30% in the last year. It seems Spirit was aggressively trying to expand its fleet and now is watching the investment sit idle.
On April 9, the company got some more bad news as analysts delivered a highly pessimistic outlook for 2020 earnings. But the stock has largely traded sideways since that announcement which suggests that maybe the company’s stock has reached a bottom. After all, to single out any airline as a threat to miss on earnings in this current environment is unrealistic. It’s going to be a terrible year for every airline. Period.
That’s the bad news. The good news is that Spirit, unlike the major carriers, is very familiar with how to compete with rock-bottom airfare. And customers know what they’re getting with Spirit. That won’t change so there’s less of a chance to disappoint. And, Spirit has virtually no international exposure (the company offers flights to just a handful of Latin American countries). That’s significant because while domestic travel may come back soon, international travel will probably be restricted for some time.
Although not listed initially, it does appear that Spirit will be receiving some of the $25 billion in government stimulus. And with the company reporting positive free cash flow in 2019 (the first time the company had pulled that off in six years), things are looking good.
About Spirit Airlines
Spirit Airlines, Inc provides airline services. The company also offers hotels and rental cars services. It serves 93 destinations in 15 countries in the United States, Latin America, and the Caribbean. As of December 31, 2023, the company operated a fleet of 205 Airbus single-aisle aircraft. The company was formerly known as Clippert Trucking Company and changed its name to Spirit Airlines, Inc in 1992.
Read More - Current Price
- $1.02
- Consensus Rating
- Strong Sell
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 7 Sell Ratings.
- Consensus Price Target
- $2.00 (96.1% Upside)
#6 - Eldorado Resorts (NASDAQ:ERI)
With their crowded gaming floors and high-touch surfaces, casinos would seem to be one of the least likely bets among travel stocks. But it’s a bet you should be willing to take with Eldorado Resorts (NASDAQ:ERI).
Prior to the outbreak of the novel coronavirus, Eldorado was in the process of buying out Caesars Entertainment Corporation. This is significant because Caesars is the “official casino partner” of the National Football League (NFL). And if I had to make one bet on the future of live sports in the United States, it is that the NFL will be playing football in the fall.
In addition to its affiliation with the NFL, Caesars is also the official supplier of betting odds for both ESPN and Turner Sports. And when the buyout is complete, ERI will have access to a network of sports books that is spread out among 29 casinos in nine states.
This is a presentation about stocks for you to buy and hold. And patience will be required if you’re going to own ERI stock. But with the stock trading at nearly 25% of the price it was at to start the year, the stock appears to be giving investors a great entry point. Even if the casino industry takes a while to come back, the company should get a nice lift from the sports book side of things.
About Eldorado Resorts
Eldorado Resorts, Inc operates as a gaming and hospitality company in the United States. It owns and operates Eldorado Resort Casino Reno, a hotel, casino, and entertainment facility; Silver Legacy Resort Casino, a themed hotel and casino; Circus Circus Reno, a hotel-casino and entertainment complex; Eldorado Resort Casino Shreveport, a hotel and tri-level riverboat dockside casino; Mountaineer Casino, Racetrack & Resort, a hotel, casino, entertainment, and live thoroughbred horse racing facility; Presque Isle Downs & Casino, a casino and live thoroughbred horse racing facility; and Eldorado Gaming Scioto Downs, a modern racino.
Read More - Current Price
- $32.82
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
It’s hard for many Americans to see it right now, but the global economy will recover. The travel sector may be one of the lagging indicators. And even within specific industries (hotels, airlines, etc.), some companies will recover faster than others.
Former Federal Reserve chairman Ben Bernanke likened the current crisis to a severe winter storm, or other natural disaster. Essentially, Bernanke is repeating what some other analysts have suggested. That is, while the economic destruction is harsh, the recovery may be equally as swift.
However, right now any recovery will “follow the science” and the science is conflicted on the matter. While it’s becoming more and more certain that the intense social distancing (i.e. mitigation) efforts taking place throughout the country have had some effect in “flattening the curve”, it won’t be “business as usual” until there is a vaccine for the novel coronavirus.
But somehow, someway, the economy is going to reopen. And when it does, the travel companies will be ready to greet travelers with open arms. And that will be good news for investors.
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