In this article, we discuss the 10 travel stocks to buy despite recession fears. If you want to skip our discussion on the travel industry outlook, go directly to 5 Travel Stocks to Buy Despite Recession Fears.
In an interview with CNBC on August 4, Jed Kelly at Oppenheimer presented his bullish outlook on travel demand. He stressed the resilience of travel demand, citing that “If we do go into recession, people are still going to travel.”
The analyst believes that the affluent segment of society remains largely unimpacted by inflationary pressures. Hence, while this segment is likely to travel frugally, it will not abandon its traveling plans, be it for leisure or professional purposes. Research from numerous analysts and publications is also backing Kelly’s bullish stance on the travel trade.
Following the Coivd-19 pandemic, the demand for travel and tourism is recovering as countries have made significant progress in vaccinating their population and easing down on lockdowns. According to a 2022 Summer Travel Survey conducted by Deloitte, 46% of Americans are planning a trip that includes staying in paid lodging this year. Overall, 73% of Americans are planning to travel domestically, while 27% are interested in going abroad. The risk of being stranded abroad following a positive COVID-19 test as well as expensive international flights could all be contributing factors to the comparatively lower demand for international flights. With 67% of passengers scheduling hotel stays and 16% arranging rental stays, the US hospitality sector is expecting a booming summer. According to the US Travel Association, domestic travel for leisure purposes has beat the pre-pandemic levels as of July 2022. Furthermore, domestic traveling for business purposes is anticipated to reach 96% of the pre-pandemic level by next year.
However, it must be noted that travel decisions have started to get impacted by financial considerations as inflation in the US has risen to a four-decade high. Kelly pointed out that there are signs that the consumer is tapped out as the level of savings is falling and credit levels are rising. Furthermore, the Federal Reserve is increasing the benchmark interest rates to combat inflation, making credit more expensive for consumers. The rising inflation and the interest rate hikes have raised concerns about a recession.
These developments beg the question of whether people will continue to travel or curtail much of their discretionary activity. Kelly believes that due to the COVID-19 restrictions and lockdowns in the last two years, people have not traveled for vacations, and this has caused a pent-up demand, which will remain strong in the future. However, the fears of recession along with higher airfares and hotel rates will cause consumers to compare the services of companies more before making purchasing decisions. This is where travel aggregators like Tripadvisor, Inc. (NASDAQ:TRIP), Airbnb, Inc. (NASDAQ:ABNB), and Booking Holdings, Inc. (NASDAQ:BKNG) come into play. According to the analyst, this was also evident during the 2008-09 recession when Booking Holdings, Inc. (NASDAQ:BKNG) gained market share as traffic on the platform rose with people comparing rates to look for more economical travel arrangements.
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Travel stocks are expected to hold well despite a challenging macroeconomic environment. Keeping this in view, we have shortlisted 10 travel stocks to buy despite recession fears. These companies have strong business fundamentals and have posted decent quarterly results, highlighting their strength of operations. We have also discussed the analyst ratings and hedge fund sentiment based on the 912 funds in Insider Monkey’s database as of Q1 2022.
10. Choice Hotels International, Inc. (NYSE:CHH)
Number of Hedge Fund Holders: 21
Choice Hotels International, Inc. (NYSE:CHH) is a Rockville, Maryland-based operator of hotel chains globally that range from budget to premium options.
The company reported a better-than-expected top line for Q2 2022. Choice Hotels International, Inc. (NYSE:CHH) saw its quarterly revenue increase by 32.2% YoY to $367.97 million and outperformed consensus estimates of $322.74 million by 14%. Domestic revenue per available room (RevPAR) is a key metric for the hospitality industry. The company’s RevPAR observed a 13% growth from the second quarter of 2019 and is on track to outpace pre-COVID levels for the thirteenth consecutive month.
As of June 30, Choice Hotels International, Inc. (NYSE:CHH) has awarded domestic franchise agreements to 215 entities, reflecting a rise of 8% from the second quarter of 2021. During Q2 2022, the company focused on keeping an efficient group of hotels in its portfolio and offloaded hotels that did not line up with its growth strategy. In June 2022, Choice Hotels International, Inc. (NYSE:CHH) sold DFW Hotel in Southlake, Texas, for $30 million, which is expected to strengthen the company’s balance sheet further.
Here’s what Baron Funds said about Choice Hotels International, Inc. (NYSE:CHH) in its Q4 2021 investor letter:
“Shares of Choice Hotels International, Inc., a franchisor of economy and midscale hotels, increased in the quarter on a rebound in its business due to a surge in leisure travel and work-from-anywhere arrangements that allowed people to combine work and pleasure. Revenue per available room surpassed 2019 levels, and unit growth accelerated overall and among higher-revenue-generating segments like its Cambria and Ascend brands, producing strong earnings and a robust balance sheet.”
9. Tripadvisor, Inc. (NASDAQ:TRIP)
Number of Hedge Fund Holders: 30
Tripadvisor, Inc. (NASDAQ:TRIP) is a Needham, Massachusetts-based online travel entity that provides online hotel reservations and bookings for experiences, lodging, restaurant, and travel on its mobile and website platform.
In Q2 2022, Tripadvisor, Inc. (NASDAQ:TRIP) saw its revenue increase by 77.4% YoY to $417 million, which outperformed the analysts’ estimates of $391.82 million by 6.4%. Furthermore, adjusted EPS for the three months was posted at 37 cents, 11 cents higher than the consensus estimate.
For Q3 2022, Tripadvisor, Inc. (NASDAQ:TRIP) anticipates revenue to be low to mid-single digit percentage points (ppts) higher than the revenue for the same period in 2019 which was recorded at $428 million. Meanwhile, the consensus estimate stands at $423.9 million. The current share price of $20 makes Tripadvisor, Inc. (NASDAQ:TRIP) stock significantly attractive. Naved Khan at Truist thinks that the value of the company’s Viator business alone stands at $18 per share based on the total addressable market (TAM) and the market fragmentation.
Baron Funds discussed its outlook on Tripadvisor, Inc. (NASDAQ:TRIP) in its Q1 2022 investor letter. Here’s what the firm said:
“Outperformance of the Fund’s investments in Communication Services, Financials, and Industrials and lower exposure to the lagging Consumer Discretionary sector added the most value. Favorable stock selection in online travel company Tripadvisor, Inc. (NASDAQ:TRIP), which benefited from signs that travel demand is improving as the pandemic recedes.”
8. United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of Hedge Fund Holders: 31
United Airlines Holdings, Inc. (NASDAQ:UAL) is the Chicago, Illinois-based holding company for United Airlines. The airline operator offers a wide range of domestic and international travel routes.
In a research note issued to investors on July 25, Stephen Trent at Citi has given United Airlines Holdings, Inc. (NASDAQ:UAL) stock a Buy rating with a target price of $56. The target price reflects a potential upside of over 44% from the closing price as of August 4. Trent thinks the market is facing challenges in determining whether the travel demand will contract due to tough economic circumstances or not. However, the analyst believes that the weakness in global crude oil prices and the increase in capacity will lower costs without having a significant impact on the total revenue per available seat mile (TRASM).
Insiders are optimistic about United Airlines Holdings, Inc.’s (NASDAQ:UAL) outlook as Director Edward Shapiro acquired 50,000 shares in the company for $1.8 million on July 25. While many major airlines faced labor shortages and capacity constraints during the pandemic, Kelly believes these issues are fading into the background now as most airlines aim for a 15% increase in capacity next year.
Miller Value Partners revealed its stance on United Airlines Holdings, Inc. (NASDAQ:UAL) in its Q2 2022 investor letter. Here’s what the investment management firm said:
“United (NASDAQ:UAL) trades at a similarly depressed multiple, 3.6x. Outside of two months prior to the pandemic, it’s also only been below 4x in Jun 2016 as well. It rose ~80% over the next year. Travel company stock prices seem to be caught in the vortex of simple rules that drive many systematic and macro discretionary strategies. Recession equals sell consumer discretionary. High oil prices mean sell transportation. The facts don’t matter, at least in the short term. We believe they absolutely will in the long term, which is why we’ve added to our exposure.”
United Airlines Holdings, Inc. (NASDAQ:UAL) was held by 31 hedge funds as of Q1 2022.
7. Wyndham Hotels & Resorts, Inc. (NYSE:WH)
Number of Hedge Fund Holders: 34
Wyndham Hotels & Resorts, Inc. (NYSE:WH) is a Parsippany-Troy Hills, New Jersey-based hotel franchisor with over 9,280 locations globally.
Wyndham Hotels & Resorts, Inc. (NYSE:WH) reported strong Q2 2022 results on July 26 and raised its full-year guidance. The company reported revenue of $386 million and outperformed the consensus estimate of $358.1 million. Meanwhile, adjusted EPS was recorded at $1.07, which was 13 cents higher than the analysts’ forecasts. Wyndham Hotels & Resorts, Inc. (NYSE:WH) also increased the 2022 adjusted EPS estimate to $3.51 - $3.63 from $3.39 - $3.51. The midpoint of $3.57 is two cents higher than the consensus estimate of $3.55. The company raised its forecast on the back of better projections due to the license fees from the Travel and Leisure segment.
In an investment note issued on July 29, Michael Bellisario at Baird gave Wyndham Hotels & Resorts, Inc. (NYSE:WH) stock an Outperform rating and a target price of $88. The analyst sees the company offering an enticing risk-adjusted return potential following the recent fall in stock price.
Impactive Capital increased its stake in Wyndham Hotels & Resorts, Inc. (NYSE:WH) by 25% during Q1 2022.
6. Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH)
Number of Hedge Fund Holders: 35
Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) is a Miami, Florida-based cruise line operator.
On August 3, Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) launched its second of six vessels, Norwegian Viva, from the shipyard in Venice. The vessel has the potential to accommodate 3,215 guests. The company will receive four remaining vessels by 2027.
Cruise lines were one of the most severely impacted sub-industry in the travel sector during the COVID-19 pandemic. Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) benefitted from the US Center for Disease Control’s (CDC) decision to remove its COVID-19 protocol for cruise ships on July 18. The cruise industry is now staging a strong recovery and sees profitability in 2023.
Miller Value Partners also shared its bullish stance on Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) in its Q2 2022 investor letter. Here’s what the firm said:
“We do own Norwegian (NYSE:NCLH), which is back to levels not seen since May 2020. Norwegian is the boutique, premium brand. It has guided for a return to positive operating cash flow and adjusted EBITDA in the second half. Management expects to earn record adjusted EBITDA in 2023 and to generate enough cash flow to cover all its capital needs, including debt maturities. It trades at 6x 2023 earnings, well below its historical average of 11.8x.”
As of Q1 2022, 35 funds held a cumulative stake worth over $539 million in Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH).
In addition to Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH), stocks such as Tripadvisor, Inc. (NASDAQ:TRIP), Airbnb, Inc. (NASDAQ:ABNB), and Booking Holdings, Inc. (NASDAQ:BKNG) are also attracting hedge fund investment.
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Disclose. None. “People Are Still Going to Travel”: 10 Travel Stocks to Buy Despite Recession Fears is originally published on Insider Monkey.