Travel Stock Plays & Poll
Senior Field Producer
As temperatures heat up, summer travel will heat up too. So we decided it was time to go through our stock screener and find the hot performers in the travel industry.
We’ve screened for companies among the major exchanges here in the U.S. involved in the travel industry including airlines, hotels, car rentals, and restaurants.
Market cap had to be greater than $500 million. Seventy-eight companies met these criteria.
From the 78 companies, we looked at their average performance during the summer months (Memorial Day to Labor Day) in the last 5 years. 18 out of 78 have managed to post an average gain greater than 10%, 8 of the top 18 are airlines.
Car Rental Plays
Based on that screener, the best performer has been Dollar Thrifty Automotive, with an average return of 29 percent in the past 5 years during the summer.
John Healy, Research Analyst at Northcoast Research said “Demand trends are favorable and now both the commercial and leisure traveler is being active. At the end of 2009 and 2010 the improving corporate trends helped the industry and now we're seeing some greater traction among leisure travelers, which will help the overall industry. Keeping in mind leisure demand is still north of 15%, so it's still off significantly during peak levels in 2008. This trend is not unusual, typically see corporate business comeback before leisure and that's what we've seen in the last 2 years. We're on the cusp of the turnaround for leisure.”
Although Healy has a positive outlook on the sector, he has a neutral rating on Dollar Thrifty Automotive because of the run up we’ve seen in the stock price. Healy believe Dollar Thrifty Automotive is “a company that has had an amazing turnaround and restructured their business significantly. They've also generated a ton of cash. The M&A angle is also interesting plus tier stand-alone options as well. All this to say, the $72 level reflects fair value for what the operations are worth right now.”
Within the sector Healy favors Avis Budget, with a buy rating. “They've done an amazing job improving cost structure of their business, repositioning price points, their per transaction basis has improved immensely as well and they're leveraged to both corporate and leisure business. So, overall it's a cheap stock here,” said Healy.
Among the airline companies, Robert McAdoo, Senior Research Analyst with Avondale Partners has US Airways and United Continental Holdings as his top two picks.
McAdoo said US Airways has been the “most disciplined in terms of capacity and share price has gotten hit a bit recently due to their decision about hedging and that it is not needed. And while some investors got concerned about that issue, this is a name that hasn't attracted a lot of attention and is a bit unloved, but offers investors a lot of value.”
United Continental Holdings has been integrating its business since its merger over a year ago. The company is “consolidating Continental and United and they're already doing things to reduce competition in the markets where they compete — taking advantage of each of their solid markets. This is a company with a great deal of value and will continue to deliver,” said McAdoo.
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