SHO - 7 Travel Stocks to Buy as a Summer Surge Sees Record Trips

2024-06-17 10:22:44 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Despite talk of the “revenge travel” trend cooling down, recent headlines strongly suggest that travel demand is coming back with a vengeance . Or, at the very least, holding steady at elevated levels. With this, there is great interest in figuring out what are the top travel stocks to buy.

The travel sector encompasses numerous industries. First, of course, air travel. Airline stocks are heavily affected by business and personal travel demand. Alongside airlines, hotel and hotel booking stocks are also very sensitive to perceptions about the health of the travel economy.

That’s not all. This is an important factor, when it comes to the performance of casino stocks , cruise ship stocks, as well as other leisure stocks in related industries. However, it’s not simply the trend itself that makes any stock in this category a buy.

Rather, it’s this tailwind, coupled with company-specific strengths, that make a travel stock worthy of an addition to your portfolio. With this in mind, let’s take a look at seven travel stocks to buy, and see why each one is a great vehicle for capitalizing on this trend.

Caesars Entertainment (CZR)

Caesars Entertainment (NASDAQ: CZR ) is one of the largest casino operators, both in Las Vegas and in top gaming destinations across the United States. Both bricks-and-mortar gaming and online gaming experienced a boom during the pandemic and post-pandemic eras.

Although this boom has slowed down, leading to big declines for CZR stock and its peers, now may be the time to get back into this sector, especially Caesars Entertainment. Why CZR in particular? Carl Icahn’s recent involvement with the company may be a top reason. The billionaire investor, who is past shareholder of Caesars, and recently made another sizable investment in the company , has thus far made no plans to engage in his usual shareholder activism.

However, BofA’s Shaun Kelley has argued that Icahn’s investment is a clear signal that this travel stock is undervalued at current price levels. While CZR has surged on the Icahn news, further price discovery by the market, combined with a possible boost to Caesars’ bottom line due to the latest travel trends, may lead to further gains ahead for shares.

Southwest Airlines (LUV)

Southwest Airlines (NYSE: LUV ) is another of the travel stocks to buy that’s been in the headlines due to the recent involvement of a shareholder activist. However, unlike with Icahn and Caesars, the billionaire investor targeting the low-cost carrier has more concrete plans in mind to maximize the value of his investment.

As you may have heard, Elliott Management , the hedge fund managed by billionaire activist investor Paul Singer, has accumulated $1.9 billion position in LUV stock. The fund has already laid out a turnaround plan to improve the company’s operating performance. Elliott believes that, if successfully executed, this plan could boost LUV to $49 per share within a year.

Not too shabby, as that would represent around a 72.5% jump from current prices. Only time will tell whether Elliott makes headway with Southwest’s board. Or, if its cost-cutting focused plan will produce the intended results. However, alongside a possible boost from shareholder activism, the aforementioned travel demand trends could lead to stronger-than-expected results for the airline. This too could drive a liftoff for LUV.

Sunstone Hotel Investors (SHO)

Sunstone Hotel Investors (NYSE: SHO ) is a real estate investment trust ( REIT ) that owns branded hotel properties across the United States. Despite talk of robust travel demand, investors have been pessimistic about hotel REITs in recent months, and this stock is no exception.

Yet while Sunstone Hotel Investors stock may continue to languish through the upcoming “hot travel summer,” don’t assume that Sunstone is doomed to produce weak returns over a longer time frame. At least, that’s the view of Baird analyst Michael J. Bellisario. Last month, Bellisario pointed out that it’s not just fatigue over “higher for longer” interest rates that’s weighing on SHO.

Disruptions related to hotel renovations have been a factor as well. Bellisario argues that shares have become overly discounted because of this, creating a buying opportunity. As Sunstone’s fiscal performance stands to improve starting next year, the analysts see a path to a rebound, and thus gives shares a “Outperform” rating. It may take some time, but it’s not too early to lock down a position in SHO stock.

Sun Country Airlines (SNCY)

Among airline stocks, Sun Country Airlines (NASDAQ: SNCY ) is another of the top travel stocks to buy. As I recently argued, shares in the passenger, charter, and cargo airline have become oversold , following the market’s negative reaction to the company’s latest quarterly earnings release.

Although Sun Country did report results that fell short of expectations, don’t assume a similar scenario will play out in the quarters ahead. Positive surprises with Sun’s Q2 and Q3 2024 results could indicate that the market overreacted with its response to the Q1 numbers. Recent news about air travel demand resilience underscores the possibility of this scenario playing out.

While for certain, strong summer results may just well sent SNCY stock, at around $10.50 per share today, back on up to $15 per share and up. If not later years, perhaps next year is when Sun Country shares cruise back to higher altitudes. According to sell-side forecasts, sell side forecasts call for earnings of $1.58 per share in 2025 , with the highest forecast calling for earnings of $2.58 per share.

United Airlines (UAL)

With United Airlines (NASDAQ: UAL ), you have the opportunity to buy a strong-performing airline stock poised to carry on with its winning streak. Sure, shares in the legacy carrier have arguably reached cruising altitude lately.

After climbing to prices topping $50 per share back in April, UAL stock has since held steady at or near this price level. As can be clearly deduced from UAL’s super-low forward valuation of 5.1 times earnings, there is the perception of great uncertainty about fiscal performance going forward. To some extent this makes sense. It’s not merely an issue of demand uncertainty. Delays in new Boeing (NYSE: BA ) aircraft deliveries has affected hiring at the airline .

It’s easy to see how this could also translate into an impact on operating results. However, late last month, United reiterated its Q2 2024 guidance . If the airline meets or beats forecasts, this could help shift investor sentiment back to bullish. This in turn could remove the current valuation discount being applied to UAL. Per Jeffries’ Sheila Kahayaoglu, UAL trades at around a 25% discount to peers .

Wynn Resorts (WYNN)

Wynn Resorts (NASDAQ: WYNN ) is another casino stock that should be considered one of the top travel stocks to buy. Yes, in recent years, headwinds with the company’s Macau operations have outweighed a resurgence among its casinos in Las Vegas and elsewhere. This has resulted in mixed performance for the stock.

However, Macau gaming revenue recently surged to its highest levels since the onset of the Covid-19 pandemic four years ago. At the same time, WYNN stock has fallen back down to a reasonable valuation of 15.9 times forward earnings. Historically, shares have traded at a valuation in the high teens/low 20s . A Macau rebound alone may not necessarily drive a re-rating for WYNN, but there’s another catalyst that might.

I’m talking about Wynn’s latest development gamble: the $3.9 billion Wynn Al Marjan , located in the UAE emirate of Ras Al Khaimah. Set to open in 2027, this property could eventually generate $1 billion per year in operating income , according to analysts at CBRE. Further progress on this development, plus continued strength in Macau and in the U.S., could provide a significant boost for WYNN.

Yatra Online (YTRA)

Although Yatra Online (NASDAQ: YTRA ) is a travel stock, admittedly it’s more of a special situation investment than a wager on the strength of the global travel sector. U.S.-domiciled YTRA owns a 65% stake in India-based travel site Yatra Online Limited.

As I’ve pointed out previously, YTRA stock is very undervalued . Why? Yatra Online Limited, listed on India’s BSE Exchange, as a market cap of Rs 20 billion, or around $246.3 million. This make’s YTRA’s worth around $160 million. Add in the U.S. parent’s $52.4 million in cash and short-term investments, and it’s clear that YTRA trades for around a third of its underlying value.

Although bridging this valuation may not happen anytime soon, in the long-run underlying value could be realized. The value of Yatra’s main asset could also keep climbing. As InvestorPlace’s Faisal Humayun recently argued, India’s travel sector is growing at an accelerated pace . Yatra is also the leading corporate travel booking agent in India. These advantages bode well for its long-term prospects.

On the date of publication, Thomas Niel did not hold (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.

More From InvestorPlace

• The #1 AI Investment Might Be This Company You’ve Never Heard Of
• Musk’s “Project Omega” May Be Set to Mint New Millionaires. Here’s How to Get In.
• Legendary Investor Predicts: “Forget A.I. THIS Technology Is the Future”

The post 7 Travel Stocks to Buy as a Summer Surge Sees Record Trips appeared first on InvestorPlace .