From sea to shining sea, the green shoots of a re-opening are rapidly turning into a forest of lush growth. That may sound a bit over the top, but after two long years, it appears that 2022 will bring a return to travel that resembles pre-pandemic levels. And if you still think that's hyperbole, consider this:
The Institute for Health Metrics and Evaluation at the University of Washington estimates that 73% of Americans are currently immune to the omicron variant of Covid-19. At that level, many experts believe that future surges will be less disruptive. And even Dr. Anthony Fauci believes it's time for Americans to turn the page.
And that's why investors should start looking at travel stocks. To be fair, this isn't a sector where investors will find many undervalued stocks. In fact, many skeptics may say that these stocks have future growth priced in.
That's a theory that is about to be tested in a big way. This is why we've done some digging and are presenting you with seven stocks that appear to offer some intriguing value as Americans make their travel plans.
Quick Links
- Southwest Airlines
- Delta Air Lines
- Choice Hotels International
- Avis Budget Group
- Expedia
- TravelCenters of America
- Disney
#1 - Southwest Airlines (NYSE:LUV)
The first on our list of travel stocks to buy is Southwest Airlines (NYSE:LUV). According to the research firm Kastle Systems, air traffic is now at about 80% of pre-pandemic levels. That wasn’t the case a year ago. Yet in mid-April of 2021, LUV stock had managed to push past its pre-pandemic stock price. Then the Delta and Omicron variants on top of logistic issues stemming from vaccine mandates pushed the stock below $40. However, the stock looks to have found a base of support.
A selling point for Southwest throughout the pandemic is that the airline does not rely on international travel. Plus, it’s less reliant on business travel which it still appears will take some time to recover.
Southwest’s financials appear to be in good shape although the company did suspend its dividend during the pandemic. However, at this point, it’s the forward guidance that investors care about more than anything. And right now, the company is projecting earnings and revenue to grow significantly over the next five years. If that’s the case any concern about the company’s high forward price/earnings ratio will be alleviated.
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
- $31.77
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 11 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $30.78 (3.1% Downside)
#2 - Delta Air Lines (NYSE:DAL)
The bullish case for Delta Air Lines (NYSE:DAL) is nearly identical to that of Southwest. This is a company with a healthy balance sheet that is poised for air traffic to return in full. And according to CEO Ed Bastian, that growth is imminent, “…we are confident in a strong spring and summer travel season with significant pent-up demand for consumer and business travel.”
If Bastian is right, then, as MarketBeat contributor Sean Sechler points out, Delta may be better positioned to capitalize on that growth than due to their premium experiences and credit card reward programs.
Like Southwest, Delta has a high forward price/earnings ratio that would suggest the stock is overvalued. But with strong earnings and revenue numbers expected over the next few years, the company is likely to grow into that valuation and have the stock push even higher. Analysts give the stock an 18% upside ($51.25) from its price at the time of this writing. However, analysts have not weighed in since many states began announcing the removal of some pandemic restrictions.
About Delta Air Lines
Delta Air Lines, Inc provides scheduled air transportation for passengers and cargo in the United States and internationally. The company operates through two segments, Airline and Refinery. Its domestic network centered on core hubs in Atlanta, Minneapolis-St. Paul, Detroit, and Salt Lake City, as well as coastal hub positions in Boston, Los Angeles, New York-LaGuardia, New York-JFK, and Seattle; and international network centered on hubs and market presence in Amsterdam, Bogota, Lima, Mexico City, London-Heathrow, Paris-Charles de Gaulle, Sao Paulo, Seoul-Incheon, and Tokyo.
Read More - Current Price
- $63.64
- Consensus Rating
- Buy
- Ratings Breakdown
- 14 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $71.22 (11.9% Upside)
#3 - Choice Hotels International (NYSE:CHH)
We Americans love naming trends. The latest such trend to get a name is “bleisure” the act of combining business with personal travel. When offices were closed, employees took the “work from anywhere” mantra seriously. Not surprisingly, hotels noticed that more individuals, particularly those with families, were taking extended stays.
Of the hotels we researched, Choice Hotels International (NYSE:CHH) stood out. One reason is that the company has a portfolio that houses economy brands like EconoLodge as well as more premium offerings such as Cambria Hotels.
You’ll notice a familiar theme. The price/earnings and forward price/earnings ratios are elevated. That suggests that investors are already pricing growth into the stock. However, the company’s forward earnings and revenue look strong which leaves room for the stock to grow.
At this time, the consensus price target suggests CHH stock is due to fall. But analysts have yet to weigh in on the stock which just posted a double beat in their February earnings report.
About Choice Hotels International
Choice Hotels International, Inc, together with its subsidiaries, operates as a hotel franchisor in the United States and internationally. It operates through Hotel Franchising & Management and Corporate & Other segments. The company franchises lodging properties under the brand names of Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Ascend Hotel Collection, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Studios, WoodSpring Suites, Everhome Suites, Cambria Hotels, Radisson Blu, Radisson RED, Radisson, Park Plaza, Country Inn & Suites by Radisson, Radisson Inn & Suites, Park Inn by Radisson, Radisson Individuals, and Radisson Collection.
Read More - Current Price
- $146.53
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 6 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $130.00 (11.3% Downside)
#4 - Avis Budget Group (NASDAQ:CAR)
Rental car prices remain elevated. However, as Americans look to hit the road, their current ride may be looking a little worse for the wear. Particularly since the supply chain is still limiting the supply of new cars. And the global car rental market is expected to grow at a CAGR of 4.6% from now through 2028. That would put global revenue at $141.17 billion.
That bodes well for the fortunes of Avis Budget Group (NASDAQ:CAR) which delivered $9.3 billion in revenue in 2021. The Omicron wave of Covid-19 knocked CAR stock down from its 52-week high. However, that puts its price/earnings ratio at a level where the stock is undervalued. And the company is delivering earnings and revenue at higher levels than before the pre-pandemic.
Interested investors should pay attention to the short interest on CAR stock which sits just above the psychologically important 10% level with over 6 days needed to cover.
About Avis Budget Group
Avis Budget Group, Inc, together with its subsidiaries, provides car and truck rentals, car sharing, and ancillary products and services to businesses and consumers in the Americas, Europe, the Middle East and Africa, Asia, and Australasia. It operates the Avis brand, that offers vehicle rental and other mobility solutions to the premium commercial and leisure segments of the travel industry; and the Zipcar brand, a car sharing network, as well as the Budget brand, a supplier of vehicle rental and other mobility solutions focused primarily on more value-conscious customers comprising Budget car rental, and Budget Truck, a local, and one-way truck and cargo van rental businesses with a fleet of approximately 19,000 vehicles, which are rented through a network of dealer-operated and company-operated locations that serve the light commercial and consumer sectors in the continental United States.
Read More - Current Price
- $99.06
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $133.13 (34.4% Upside)
#5 - Expedia (NASDAQ:EXPE)
Americans may be looking to make a dent in those dollars they’ve set aside for travel savings. But with inflation on the rise, they’ll be looking to make those dollars stretch as far as they can. That supports the bullish case for Expedia (NASDAQ:EXPE). The online travel shopping company’s stock is up 329% since hitting its pandemic-induced low in March 2020.
On the one hand, EXPE stock is now trading higher than it did before the flight to value began in November. However, the stock has a high price/earnings and forward price/earnings. It’s also hitting technical levels of resistance that could make investors concerned that the stock’s growth is fully priced in.
We don’t think so. There’s nothing to indicate that consumers stayed away from traveling for any other reason than their options were limited. Barring a resurgence of a more complicated variant, travel demand is likely to be strong. And that makes it likely that Expedia will meet forecasts for higher earnings and revenue.
About Expedia Group
Expedia Group, Inc operates as an online travel company in the United States and internationally. The company operates through B2C, B2B, and trivago segments. Its B2C segment includes Brand Expedia, a full-service online travel brand offers various travel products and services; Hotels.com for lodging accommodations; Vrbo, an online marketplace for the alternative accommodations; Orbitz, Travelocity, Wotif Group, ebookers, CheapTickets, Hotwire.com and CarRentals.com.
Read More - Current Price
- $179.10
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 19 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $164.88 (7.9% Downside)
#6 - TravelCenters of America (NASDAQ:TA)
If we’re going to be hitting the road this summer, we’ll need places to refuel and get our snacks. It’s a simple narrative, but frequently a simple investing strategy is best. That’s why we recommend opportunistic investors look at TravelCenters of America (NASDAQ:TA) which is celebrating its 50th anniversary in 2022.
However, if you need a more substantial reason to invest in TA stock, consider this. The company plans to refresh one-third of its stores in 2022 (over 100 sites). This will be the second consecutive year the company is investing in its own growth which includes continued investment in clean energy initiatives such as charging stations and diesel exhaust fluid (DEF) availability. The company is also continuing its plans to provide hydrogen fueling for heavy-duty trucks in partnership with Nikola (NASDAQ:NKLA).
Analysts project the stock will climb over 46% from its current price. And that could go higher after the company reports earnings in February. Investors should also look at the fundamentals of the company which shows that the company looks undervalued at its current price.
About TravelCenters of America
TravelCenters of America Inc operates travel centers, truck service facilities, and restaurants in the United States and Canada. The company's travel centers offer various products and services, including diesel fuel and gasoline, as well as nonfuel products and services, such as a range of truck repair and maintenance services, diesel exhaust fluids, full service restaurants, quick service restaurants, and various customer amenities.
Read More - Current Price
- $86.00
- Consensus Rating
- Buy
- Ratings Breakdown
- 1 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $15.00 (82.6% Downside)
#7 - Disney (NYSE:DIS)
Last, but certainly not least, on our list of travel stocks to buy is Disney (NYSE:DIS) which continues its recovery from the pandemic. For the last year, I’ve viewed Disney as a “yeah but” stock. It goes like this.
Bulls would point out a bullish indicator like a rising subscriber base for Disney+ the company’s streaming service. That would be met with “Yeah, but the parks aren’t open”.
The company’s movie studios are releasing one blockbuster after another, and many of them can go direct-to-streaming. Yeah but the cruise lines aren’t sailing.
Both sides have a point. Disney is a sum-of-its-parts stock. The emergence of Disney+ was certainly a gift for the company in the early days of the pandemic. But for investors to get bullish about DIS stock the company needs to be hitting on all cylinders. That day appears to be coming. That’s the biggest reason why investors should look beyond the current valuation and lean into revenue and earnings that are projected to increase over the next five years.
About Walt Disney
The Walt Disney Company operates as an entertainment company worldwide. It operates through three segments: Entertainment, Sports, and Experiences. The company produces and distributes film and television video streaming content under the ABC Television Network, Disney, Freeform, FX, Fox, National Geographic, and Star brand television channels, as well as ABC television stations and A+E television networks; and produces original content under the ABC Signature, Disney Branded Television, FX Productions, Lucasfilm, Marvel, National Geographic Studios, Pixar, Searchlight Pictures, Twentieth Century Studios, 20th Television, and Walt Disney Pictures banners.
Read More - Current Price
- $114.27
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $123.83 (8.4% Upside)
According to the U.S. Travel Association, travel spending in December 2021 was $92 billion. That was just 2% below the money spent prior to the pandemic. And the organization says that number tends to grow 2% to 4% annually.
While the outlook for travel stocks looks bullish, investors may not see that growth reflected in revenue and earnings until the second half of the year. And some analysts are cautioning that the recovery will not be complete until we see a recovery in both business and international travel.
In the short term it may be a good idea to put some of these and other travel stocks on your watch list and look for opportunities to buy them at a favorable price. And if you would rather not invest in individual stocks, you can look into travel and tourism-focused ETFs. Two ETFs to consider are the ETFMG Travel Tech ETF (NYSEARCA:AWAY) and the U.S. Global Jets ETF (NYSEARCA:JETS).
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