Post-pandemic, the hotel industry represents a suppressed market sector with great potential for growth. The covid-19 lockdowns and restrictions confined us to our homes for over a year. They shuttered hotels and guest house, grounded planes and beached the cruise ships. In the first 10 months of 2020 alone, the pandemic cost the tourism industry $935 billion in revenue worldwide.
In early May, 2020, occupancy of US hotels was less than 15 percent for luxury hotels and around 40 percent for economy. McKinsey suggest that the hotel sector was one of the hardest hit by the pandemic, and that it could take until 2023 to recover. Its recovery could also involve a level of adaptation and repurposing, as business occupancy patterns might change to reflect fewer short business trips (a zoom meeting will do) and more longer “workations.” Guests have also expressed their concern for higher hygiene standards and other covid-friendly changes such as contactless check-ins.
But while there is plenty of discussion about exactly how hotel stocks might recover. There is little doubt that demand exists for a post-pandemic splurge. After the trauma, frustrations and sacrifices of the pandemic, we are seeing a renewed thirst for travel, a desire to reconnect with distant family, friends and explore new horizons. Indeed in early July 2021, a key hotel industry metric finally recovered to pre-covid levels thanks to leisure travelers. Revenue per available room (RevPAR) increased 5.7% last week compared to the same period in 2019.1
Investors looking for growth potential often seek out suppressed markets. But even if you know you want to invest in hotels, it can be hard to know what hotel stocks to buy. So what hotel stocks are worth watching as vaccinations are rolled out and many governments are able to slowly dismantle protective measures?
1. CRUZ Travel ETF – The Travel Reopening Trade (CRUZ)
Defiance’s CRUZ launched in June 2021 and is an Exchange-Traded Fund (“ETF”) rather than a simple stock. This means that you can buy and sell it like a stock, but its net asset value is linked to the value of its composite stocks, which in this case seeks to track an index of global companies that derive at least 50% of their revenue from passenger airline, hotel and cruise industries. While its not a pure hotel ETF, it is positioned to capture potential growth in a travel and tourism industry that contributed $8.9 trillion to world GDP pre-covid.2
As an ETF, CRUZ provides access to a range of stocks, which promotes an investment strategy that seeks exposure to this sector while mitigating the risk of buying one individual stock. It is also important to note that unlie stocks, ETFs charge fees.
2. Marriott International Inc. (MAR)
Marriott is a multinational company that operates, franchises, and licenses lodging including hotel, residential, and timeshare properties. With over 600 hotels in its brand, Marriott had 177,000 employees and a revenue of over $22 bn in 2017.3 Its stock price took a dip with the onset of the pandemic, but it has beat earnings estimates, for the last two quarters by an average of 126.67%.4 Its stock price has risen over 50% in the past 52 weeks, beating the S&P 500 by about 15%.5
3. Hilton Worldwide Holdings Inc. (HLT)
With over 5,900 hotels worldwide, Hilton has a market cap of over $34bn. Its stock price rose over 55% over the past year.6 Hilton was hit hard by the global pandemic, but its first quarter report of 2021 indicated that it is looking to the future. The report stated that as of April 28, 2021, 97 percent of its system-wide hotels were open. In March 2021 it repaid $250 million of its outstanding debt balance and approved 21,900 new rooms for development. This brings its development pipeline to 399,000 rooms.7
4. Intercontinental Hotels Group (IHG)
IHG owns, manages, franchises, and leases hotels in the Americas, Europe, Asia, the Middle East, Africa, and Greater China. The company operates hotels, resorts, restaurants, and spas and has a market cap of over $11 bn. Its stock price rose by over 29% over the last 52 weeks.8
IHG’s stated strategy is to deliver high-quality, industry-leading net rooms growth, driven by continued investment in enhancing guest and owner offer and developing brands at scale in high-value market. In February 2021 IHG announced an annual loss of $153 million due to the restrictions of Covid-19. The companies’ 5,959 hotels and 883, 819 rooms include a diverse portfolio of different brands, including the Holiday Inn Express brand, which held strong even during the depths of the covid slump and helped the company outperform in key markets.9
5. Wyndham Hotels & Resorts Inc (WH)
With a market cap of over $6bn, Wyndham Hotels and Resorts is the world’s largest hotel franchising company with over 8,900 hotels (approximately 796,000 rooms) across nearly 95 countries. Its stock price rose over 50% over the last 52 weeks and in the 23 months from April 2020 to March 2021, it executed nearly 100 new construction deals across the United States, achieving approximately 90 percent of the previous 12 months’ pre-pandemic levels. 10
The company’s new construction pipeline now includes over 260 hotels that are currently under construction contributing to an overall new construction pipeline of 950 hotels, which will add approximately 140,000 rooms to its domestic and international portfolio. 11
No doubt Wyndahm was affected by the pandemic, but its leaning towards lower-priced economy and midscale lodgings, as well as 70% of its clientele being leisure travelers, bodes well for is recovery. These tend to do better than higher-priced hotels during difficult economic periods.12
1 U.S. HOTELS FINALLY SURPASS PRE-COVID LEVELS AS TRAVEL SURGES , July 8, 2021. https://www.bloomberg.com/news/articles/2021-07-08/u-s-hotels-finally-surpass-pre-covid-levels-as-travel-surges
2 “The Covid-19 Pandemic Has Cost The Global Tourism Industry $935 Billion,” Duncan Madden, January 14, 2021. https://www.forbes.com/sites/duncanmadden/2021/01/14/the-covid-19-pandemic-has-cost-the-global-tourism-industry-935-billion/?sh=7852ded17d40
4 “Why Marriott (MAR) is Poised to Beat Earnings Estimates Again,” July 12, 2021 https://finance.yahoo.com/news/why-marriott-mar-poised-beat-161004185.html
5 As of July 14, 2021. Data derived from multiple sources or calculated by Yahoo Finance. https://finance.yahoo.com/quote/MAR/key-statistics?p=MAR
6 As of July 14, 2021. Data derived from multiple sources or calculated by Yahoo Finance. https://finance.yahoo.com/quote/HLT/key-statistics?p=HLT
7 “Hilton Reports First Quarter Results,” May 5, 2021 https://newsroom.hilton.com/corporate/news/hilton-reports-2021-first-quarter-results
8 As of July 14, 2021. Data derived from multiple sources or calculated by Yahoo Finance. https://finance.yahoo.com/quote/IHG/key-statistics?p=IHG
9 “Holiday-Inn owner IHG posts annual loss on COVID-19 slowdown”. Arab News. 23 February 2021. https://www.arabnews.com/node/1814451/business-economy
10 As of July 14, 2021. Data derived from multiple sources or calculated by Yahoo Finance. https://finance.yahoo.com/quote/WH
11 “Pres Release: Wyndham Hotels & Resorts Continues Strong Momentum in Economy, Midscale Extended-Stay and Upper Midscale New Construction,” June 14, 2021. https://www.wsj.com/articles/wyndham-hotels-resorts-continues-strong-momentum-in-economy-midscale-extended-stay-and-upper-midscale-new-construction-01623675647?tesla=y
12 “Is Wyndham Hotels Stock a Buy?” Lawrence Rothman, Feb 19, 2021, https://www.fool.com/investing/2021/02/19/is-wyndham-hotels-stock-a-buy/