August 14, 2022

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Just Do Travel

Forget Inflation! 7 Stocks to Buy for a Summer of Revenge Travel

6 min read

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  • Expedia (NASDAQ:EXPE): The travel-fare aggregator could enjoy a post-pandemic wave demand surge.
  • Southwest Airlines (NYSE:LUV): The discount carrier’s mostly domestic profile fits quite well.
  • Hertz (NASDAQ:HTZ): A risky idea among travel stocks to buy, coiled-up demand could benefit HTZ.
  • Disney (NYSE:DIS): Though suffering a slow start to the year, the brand represents a hot spot among travel stocks to buy.
  • Marriott (NASDAQ:MAR): People cooped up at home may want to splurge a little with their accommodations.
  • Airbnb (NASDAQ:ABNB): Another high-risk idea among travel stocks, ABNB could benefit from the normalization effect.
  • Royal Caribbean Cruises (NYSE:RCL): Arguably the riskiest idea here, vacationers may throw caution to the wind.

Although the news media is focused on rising inflation, travel stocks may very well have a great summer.

As the Washington Post explained earlier this year more people are ready to reclaim their lives and regular activities. Further, the demand for social activities is evident in the data, with vehicle miles traveled having returned to pre-pandemic norms. Therefore, the idea of travel stocks to buy isn’t as crazy as it might initially sound.

The declining consumer purchasing power is a major concern, but an argument can be made that if inflation is poised to worsen, consumers are incentivized to book their vacation plans now. Otherwise, waiting could cause even more pain.

Jumping into this arena is a contrarian concept, but if you’ve got the stomach to handle heavy risk, these are the travel stocks to buy.

Expedia EXPE $185.84
Southwest Airlines LUV $46.26
Hertz HTZ $22.21
Disney DIS $127.77
Marriott MAR $183.15
Airbnb ABNB $165.74
Royal Caribbean Cruises RCL $81.32

Travel Stocks to Buy: Expedia (EXPE)

Expedia (EXPE) app logo on a smartphone screen

Source: NYC Russ / Shutterstock.com

With so many pressures negatively affecting American households, Expedia should be one of the worst performers of this year.

Instead, it has gained almost 4% since the January opener. The benchmark S&P 500 index is down over 8% during the same period.

Although the term revenge travel might sound strange to those who are first hearing it, the concept goes back to last year. Following an unprecedented shutdown of non-essential activities in 2020, people were ready to get out of the house, especially after the vaccine rollout.

In the spirit of transparency, EXPE is risky like many other travel stocks. In 2021, Expedia generated revenue of $8.6 billion, which was up significantly from the prior year’s tally but well off pre-pandemic norms. Still, travel sentiment is moving in the right direction so EXPE is a name to watch closely.

Southwest Airlines (LUV)

a southwest airline stocks (LUV) jet flying above the clouds

Source: Carlos E. Santa Maria / Shutterstock.com

Southwest Airlines is up more than 5% year-to-date, confirming that some relevant travel stocks are holding up better than the rest of the market.

For Southwest, part of the advantage is that the company largely focuses on providing discount fares for domestic routes.

For instance, the passenger load factor for U.S. carriers on international flights is 71.7%, noticeably below pre-pandemic norms. However, for U.S. carriers serving domestic routes, the load factor is 83.8%, which is very close to parity with the pre-Covid years.

Of course, we shouldn’t sugarcoat LUV or other travel stocks. Southwest’s revenue and profitability for 2021 was well off its pre-crisis levels. Still, the pent-up demand could spark a reversal.

Travel Stocks to Buy: Hertz (HTZ)

Hertz (HTZGQ) sign in Montevrain, France on May 8, 2016.

Source: aureliefrance / Shutterstock.com

Hertz doesn’t even have the credibility as other stocks on this list. On a YTD basis, HTZ is down more than 10%, which worse than the benchmark S&P 500.

Plus, you’ve got to figure that with the company’s bankruptcy drama that began following the global health crisis, many investors are jittery.

I’m not here to talk down the risk. Yes, Hertz generated revenue of $7.3 billion last year, which represented a lift of almost 40% against 2020’s result. The company posted a net income of $366 million. Nevertheless, HTZ is still down about 25% from 2019’s top line. So, it’s got plenty of work to do.

Why then should speculators bother with troubled travel stocks? As mentioned earlier, vehicle miles traveled has returned to pre-pandemic levels, which bodes well for the rental car service.

Additionally, with travel limited for myriad reasons to international locations, Hertz might pick up some demand it normally wouldn’t be able to serve.

Disney (DIS)

Walt Disney (DIS) logo on mobile phone with Cinderella's castile in background

Source: nikkimeel / Shutterstock.com

Considering the entertainment giant features multiple revenue channels, Disney should be one of the lower-risk travel stocks to buy.

During the Covid-19 lockdowns, the Magic Kingdom kept the lights on with exciting new platforms like its Disney+ streaming service. Therefore, with people excited about getting out of the house again, shouldn’t that be a positive for DIS stock?

Well, not quite. For one thing, having multiple avenues of sales growth also exposes an enterprise to a wider risk profile.

As well, Disney will be competing for consumer dollars — dollars that will be stretched due to inflation.

Adventurous investors may not want to give up on DIS so easily considering that its underlying theme parks and resorts represent hot commodities. In fact, multiple Disney-branded locations take top honors for most-visited theme parks globally.

Travel Stocks to Buy: Marriott (MAR)

the sign in front of a Marriott (MAR) hotel

Source: MariaX / Shutterstock.com

As people venture out of the house and either hit the road or fly the friendly skies, they’ll need lodging services. Back during the worst of the Covid-19 crisis, public spaces such as hotels likely worried many that had to travel during that period. Today, the sentiment toward hotels has shifted dramatically, as the market performance of Marriott can attest.

On a YTD basis, MAR is up a little nearly 12%, making it not only one of the better travel stocks but also a high-flyer among publicly traded securities not tied to suddenly relevant industries like oil or precious metals.

To be sure, rising inflation could incentivize travelers to consider cheaper accommodations.

However, it’s also possible that time cooped up at home — along with folks who saved their government stimulus money — may have sparked a now-or-never attitude. Since capturing lost experiences is itself at a premium, contrarians might have an opportunity with MAR stock.

Airbnb (ABNB)

A close-up shot of the Airbnb (ABNB) app on a smartphone screen.

Source: AngieYeoh / Shutterstock.com

One of the toughest ideas to navigate among travel stocks, Airbnb — basically the ride-sharing of the lodgings space — can really go either way.

Even its YTD performance, coming in at a loss of a bit over 4%, reflects ABNB’s ambiguity. No, it’s not a great figure but then again, with the S&P 500 down more than 8%, you have to put things into context.

For the bullish speculator, you’re probably looking at the core data impacting most travel stocks: vehicle miles traveled, passenger load factor and similar metrics.

These statistics confirm that on balance, Americans are either acclimated to the new normal or simply don’t fear Covid-19. Either way, the net dynamic works out for ABNB, making it one of the travel stocks to consider.

Still, it’s going to be a tough battle for Airbnb fundamentally. While the company has posted profits in its past two quarters, its retained earnings is a loss of $6.4 billion. Therefore, ABNB must continue putting up big numbers to justify its rich premium.

Royal Caribbean Cruises (RCL)

Serenade of the Seas cruise

Source: NAN728 / Shutterstock.com

Prior to the Covid-19 crisis, many people gravitated toward cruise ship operators like Royal Caribbean Cruisesbecause they provided significant bang for the buck.

Unfortunately, the industry became the public face of the SARS-CoV-2 virus before it made its way into our borders.

Not surprisingly, RCL and related travel stocks plummeted because of the pandemic. Since cruise ships aren’t part of the essential transportation network, demand absolutely cratered.

For instance, in 2020, Royal Caribbean posted revenue of $2.2 billion, followed by $1.5 billion a year later. But in 2019, the company racked up sales totaling nearly $11 billion.

It’s hard to say when (or if) Royal will get back up to pre-pandemic norms. However, for contrarian thinkers, RCL might perform well since again, it delivers memorable experiences for the money spent.

During an inflationary cycle, the cruise ship industry could offer a crucial service for those who are tight on their budget.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.