Five lodging stocks to buy boost prospects with strong consumer demand and little exposure to the effects of Russia’s ongoing invasion of Ukraine.
The five lodging stocks to buy warrant acquiring before their share prices recover further from their current reduced valuations, according to BofA Global Research. With leisure and resort demand strong or stable, the outlook seems encouraging, despite the continuing risk of the war and the Fed’s plan to keep raising interest rates in 2023 to slow both economic and employment growth.
While the management of lodging companies are conscious of the toughening macro backdrop, none have seen any material sign of slowing demand, according to BofA. Executives of most lodging companies pointed to sustained leisure demand, the return of group business and improvements in transient business activity aiding third-quarter results. Bookings, leads and meeting planner activity all remain healthy, BofA reported in a recent research note.
“Most companies expect Q4 demand to look similar to Q3, and noted healthy trends through October,” according to BofA. “Several called out accelerating occupancy in October relative to September/Q3. The average 4Q outlook — for those providing it — is +2.9% ahead of 2019.”
Five Star Trader Advisory Service Forecasts Further Growth Ahead
The Five Star Trader advisory service led by free-market economist Mark Skousen, PhD, reported on Dec. 6 that the gross output (GO) statistic, which measures total spending in the economy, is proving to be more accurate than gross domestic product (GDP) in assessing the economy’s strength. While real GDP, factoring in inflation, declined in the first two quarters of 2022, real GO continued to climb, indicating that there was no recession, Skousen wrote.
The value of the supply chain continues to boom, despite shortages, Skousen advised his subscribers. Although Skousen is not currently recommending a lodging stock, he has in the past and may again in the months ahead. However, job creation is growing, and unemployment is still under 4%, as labor shortages remain, price inflation continues at the retail level and the U.S. government runs massive deficits, he added.
More than 70 million Social Security recipients will receive an 8.7% increase starting this month, so inflation is not going away, projected Skousen, who also heads the Forecasts & Strategies investment newsletter.
“Wall Street is fearful that continued real growth means that the Federal Reserve will push for higher interest rates, and that’s why stocks have sold off over the past few days,” Skousen apprised subscribers of his investment trading service. “The danger is always that the Fed overreacts, as it has done in the past, raising interest rates too high.”
Mark Skousen, a scion of Ben Franklin and leader of Five Star Trader, meets Paul Dykewicz.
Five Lodging Stocks to Buy Feature Who’s Who of Hospitality Industry
Three of the five lodging stocks to buy pay dividends but all of them are listed as buys, according to a recent BofA research note. Internationally, Europe has performed much better than expected in the third quarter, while China could offer an opportunity in 2023, despite volatility partially caused by its zero-COVID policy and periodic strict lockdowns that have led to public protests.
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Las Vegas-based Caesars Entertainment Inc. (NASDAQ: CZR) received a $65 price objective from BofA, based on a valuation multiple in line with the lodging company’s long-term historical average. Catalysts to potentially beat that projected share price gain mainly revolve around management significantly exceeding its forecast through marketing reductions, gains in underlying revenue by regionals or Las Vegas operations, sports betting, opportunistic asset sales, land sales, joint ventures and licensing deals, and a faster-than-expected recovery following the COVID-19-related casino closures.
Risks to achieving the BofA price target include high financial and operating leverage used to fund the 2020 combination of Caesars Entertainment, Inc. and Eldorado Resorts, Inc. to form the largest gaming company in the United States. Additional risk stems from whether a cost reduction model can work in a market as competitive as Las Vegas, BofA wrote. Prolonged industry headwinds related to COVID-19 could further exacerbate these factors.
Caesars Entertainment, Inc.’s resorts operate primarily under the Caesars, Harrah’s, Horseshoe, and Eldorado brand names, offering diversified gaming, entertainment and hospitality amenities. The company also aims to provide one-of-a-kind destinations and online gaming and sports betting experiences.
Chart courtesy of www.StockCharts.com
Five Lodging Stocks to Buy Feature Hilton Worldwide
Hilton Worldwide (NYSE: HLT), of McLean, Virginia, obtained a $160 price objective from BofA, based on a premium to historical multiples for this type of hotel business due to improving share gains and a leaner and more efficient business model. The lodging company is expected to sustain historically high earnings before interest, taxes, depreciation and amortization (EBITDA), BofA added. The price objective also is in line with a midcycle multiple on recovery earnings discounted back to 2022 estimates, according to BofA.
Risks to reaching the price objective include greater-than-expected economic weakness, leading to declines in travel demand, greater-than-expected delays in hotel development — possibly slowing system growth, worse-than-expected consumer spending to cause a possible dip in demand for timeshares and any acts or threats of terrorism, BofA cautioned.
Chart courtesy of www.StockCharts.com
Hyatt Hotels Gain Place Among Five Lodging Stocks to Buy
Chicago-based Hyatt Hotels (NYSE: H) received a $110 price objective from BofA, based on a valuation below more “asset-light peers” such as Hilton. BofA views Hyatt as a way to chase the lodging cycle recovery and sees several positives: majority exposure to fee-based revenue, strongest net unit growth (NUG) in the sector, recovery potential and operating leverage through group and corporate-owned-hotel exposure, incentive management fee recovery and valuation multiple expansion
BofA’s price target could be exceeded due to possible catalysts that include Hyatt’s asset sales exceeding expectations, acquisition of Apple Leisure Group providing additional upside, group recovery, pent-up demand coming back stronger than expected in second-half 2022 and net unit growth continuing to outperform lodging c-corp peers. Key risks to the price goal are maintaining significant exposure to China, which may face headwinds to COVID policies, COVID cases pushing return to office further out and acting as a headwind to corporate travel, a heavy exposure to the luxury segment, which has lagged the rest of the industry, BofA wrote.
Chart courtesy of www.StockCharts.com
At the beginning of November, Hyatt reported a strong third-quarter performance. The company’s recent acquisition of the Apple Leisure Group, a luxury resort management service company, made the difference, said Michelle Connell, a former portfolio manager who now leads Dallas-based Portia Capital Management. The acquisition allowed Hyatt to double its global resort footprint.
As of now, 70% of Hyatt global portfolio is in the luxury and upscale hospitality segment. This bodes well, as the luxury consumer has not pulled back on travel spending, Connell opined.
Business travel has started to recover from the pandemic, with 2022 about even to Hyatt’s pre-pandemic and 2023 looking strong, Connell continued. Group booking revenue for the third quarter of 2022 ended just 3% below 2019 levels.
Group travel bookings and reservations for the third quarter of 2023 are 30% ahead of 2019 levels, Connell continued. Asia, including China, has been strong for Hyatt and future prospects look even better, she added.
As of the second quarter of 2022, Hyatt’s revenue per room in China was 15 points higher than in 2019, Connell advised. China is 10% of the company’s revenue and 5% of its profits, she added.
“Due to the region’s strength, Hyatt it is in the process of continuing to build out its luxury brand presence in Asia, excluding China,” Connell said. Plus, Hyatt has a solid cash balance of almost $3 billion. Cash is spent on stock repurchases and debt reduction, added Connell, who estimates Hyatt’s share price could jump 15-20% in 2023.
Michelle Connell heads Portia Capital Management, of Dallas, Texas.
Marriott International Makes List of Five Lodging Stocks to Buy
Bethesda, Maryland-based Marriott International (NASDAQ: MAR) is one of the premier global hotel companies, said Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter. The lodging chain, located in a neighboring suburb to where I live in Maryland, has the distinction of operating brands across all income levels and through its hotels around the world.
Marriott also pioneered the model of owning few hotels, Carlson recalled. Instead, the company earns fees for franchising its brands and managing hotels under contract to property owners. The company has one of the top loyalty programs in the industry, giving it an advantage with travelers and hotel owners looking for partners, he added.
Since the company owns little real estate and has low debt, Marriott is something of a “pure play on growth in travel,” Carlson counseled. Its fees rise quickly as occupancy increases but can decline rapidly in a downturn, he continued.
Marriott is a “solid long-term” investment on travel and is likely to increase market share around the globe, Carlson told me.
Bob Carlson, investment guru of Retirement Watch, talks to Paul Dykewicz.
BoA set a $190 price objective on Marriott, based on approximately 16x its 2023E EBITDA estimate, a premium to historical multiples for this type of hotel business but in line with the group due to depressed interest rates. The price objective is also in line with a midcycle multiple on recovery earnings discounted back to 2022E.
Downside risks to BofA’s price objective are: 1) greater-than-expected economic weakness, which may lead to declines in travel demand, 2) the potential for terrorism, which may make individuals more reluctant to travel, 3) greater-than-expected delays in new hotel development, which may slow growth in Marriott’s system, and 4) worse-than-expected business/consumer spending, which may lead to declines in overall travel demand.
Chart courtesy of www.StockCharts.com
Wyndham Wins Place Among Five Lodging Stocks to Buy
Wyndham Hotels & Resorts, Inc. (NYSE: WH), of Parsippany, New Jersey, gained a $85 price objective from BofA, showing a discount to the valuation of its peers such as Hilton, Marriott and Rockville, Maryland-based Choice Hotels International (NYSE: CHH), while in line with the long-term average of asset-light lodging C-corps. BofA wrote that the multiple is warranted given Wyndham’s competitive advantage in scale and stability in earnings from its pure franchised business.
“We think the market is discounting WH to factor in a historically significant amount of deletions every year, offset by a business that’s almost entirely fee-based,” BofA wrote. “The price objective is also in line with a midcycle multiple on recovery earnings discounted back to 2022E.”
Potential catalysts to outperform BofA’s price target are an accelerating revenue per available room (RevPAR) environment, driven by better macroeconomic data, greater-than-expected margin expansion and net-unit-growth (NUG) ahead of expectations. The price target could be missed due to potential headwinds such as greater-than-expected economic weakness that may hurt travel demand, longer-than-expected delays in hotel development that could slow system growth and worse-than-expected business and consumer spending that could cause declines in overall travel demand.
Chart courtesy of www.StockCharts.com
COVID-19 Will Not Crush Five Lodging Stocks to Buy
The U.S. Center for Disease Control and Prevention recommended wearing a mask to prevent the spread of COVID-19, a nasty strain of the flu and serious respiratory virus. CDC Director Dr. Rochelle Walensky said doing so can reduce the chance of catching or spreading such viruses.
Indeed, flu and respiratory syncytial virus are spreading at high levels in the United States at the same time COVID is picking up, stressing hospital emergency departments. Walensky also urged everyone who is eligible to receive a bivalent booster and a flu shot.
China’s economy experienced COVID-19-related weakening due to lockdowns that curbed exports and imports more sharply than expected in November. Weak global and domestic demand, public protests about the county’s zero-COVID policy and a real estate slump are slamming the world’s second-biggest economy.
China’s police patrolled streets, checked cell phones and called some demonstrators to warn them against continuing their civil unrest. That response reduced protests about the country’s zero-COVID policy that is slowing economic growth and had led many people to oppose the controversial lockdown policy of China’s leader Xi Jinping. China’s authorities may be starting to pay attention to the concerns of its citizens by slightly easing the current draconian lockdowns that are bogging down supply chains.
COVID-19 cases in the United States totaled 99,077,996 and deaths climbed to 1,082,224, as of Dec. 6, according to Johns Hopkins University. America has the dubious distinction of amassing the most COVID-19 cases and deaths of any nation. Worldwide COVID-19 deaths hit 6,644,670 people, while total cases reached 646,328,326, Johns Hopkins reported on Dec. 6.
The U.S. Centers for Disease Control and Prevention reported that 267,346,533 people, or 80.5% the U.S. population, have received at least one dose of a COVID-19 vaccine, as of Nov. 30. People who have completed the primary COVID-19 doses totaled 228,369,460 of the U.S. population, or 68.8%, according to the CDC. The United States also has given a bivalent COVID-19 booster to 37,885,266 people who are age 18 and up, accounting for 14.7% of the U.S. population in that age group.
None of the five lodging stocks to buy have much exposure to fallout from Russia’s invasion of neighboring Ukraine on Feb. 24 and the persistent shelling and missile attacks since then. Even though Russia’s leaders call that assault on Ukraine a “special military operation,” the five lodging stocks to buy are focused on serving customers who have money to spend on travel and are not immediately affected by the killing of an estimated 100,000 on both sides of the continuing conflict that shows no signs of ending soon.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Special Holiday Offer: Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great holiday gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.
