How to Profit from Recovering Travel Stocks
By John Whitefoot for Daily Gains Letter |
Since the start of the Great Recession, North Americans have been, for the most part, clutching their wallets a little tighter—especially when it comes to discretionary spending like taking trips.
With vacationing families about to hit the road, will the hazy days of summer go to the dogs, or will it be mostly sunny for Wall Street? If the current economic climate is any indicator, it will probably be slow and steady.
In spite of the economic strain of high gas prices, North Americans continue to take to the highways. The American Automobile Association projects 34.8 million people will have traveled 50 miles or more during this past Memorial Day holiday weekend—a slight one-percent decrease over the 35.1 million who traveled over the 2012 Memorial Day long weekend. (Source: “AAA Projects Memorial Day Travel to Decline by 0.9 Percent as Auto Travel Increases Slightly and Air Travel Declines by Eight Percent,” American Automobile Association web site, May 22, 2013, last accessed May 27, 2013.)
When you consider the state of the U.S. economy—high unemployment, high personal debt, and stagnant wages—a one-percent drop is actually encouraging.
Not surprisingly, car travel is the only mode of transportation that was expected to increase over the Memorial Day long weekend. The vast majority of Memorial Day travelers—89%, or 31.2 million—will travel by car, virtually flat versus the 88%, or 31.1 million, who travelled by car last year.
What does the Memorial Day weekend say about the rest of the summer? While upper-income Americans who have done well on the market will continue to take longer trips, the average American will continue to take advantage of any relief at the gas pumps.
For investors wanting to take advantage of summer travelers, the highway may be the best place to start. TravelCenters of America (NYSE/TA) operates and franchises travel centers, primarily along the United States interstate highway system. The company’s network of more than 235 interstate highway travel centers in 41 U.S. states and Ontario, Canada is one of the largest in North America.
The company has a market cap of $326.0 million and $135.9 million in cash. Currently trading near $11.00, TravelCenters of America’s share price is up 152% year-to-date and 220% year-over-year.
For travel-conscious Americans, big-budget motels will probably be the destination of choice along the way. The cost of the average hotel room is expected to increase 4.4% over 2012 to $112.21 per night. Hotels are also expected to have higher occupancy rates this summer of 70%, versus 2012 rates of 69.3%. (Source: Associated Press, “Summer Travel Forecast: Better, But No Blowout,” NPR web site, May 24, 2013, last accessed May 27, 2013.)
Choice Hotels International, Inc. (NYSE/CHH) is a leading hotel franchisor, with over 6,200 locations in the U.S. and more than 30 other countries. Its flagship brands include Comfort Inn, Quality Inn, and Econo Lodge.
The company has a market cap of $2.37 billion and $140.6 million in cash. The company also provides an annual dividend of 1.8%. Currently trading near $41.00, the company’s share price is up 20% year-to-date and 51% year-over-year.
While the U.S. weather may be unpredictable this summer, you can bet there will be a large number of Americans hitting the roads. For astute investors, a number of great companies that serve the travel industry are sitting in attractive ranges.
Tags: U.S. economy, Wall Street
