In this article, we will assess 10 Best Travel and Leisure Stocks to Buy Now.
Prior to COVID-19 pandemic, travel and tourism sector was one of the most important sectors in the world economy. The sector made up ~10% of global GDP and was responsible for 320 million jobs worldwide, as reported by the IMF. After first case was identified in Wuhan, China, COVID-19 was declared a pandemic outbreak. Due to lockdowns and ban on international travel, global hospitality and tourism sector saw significant losses.
Recovery Phase of The Industry
As per first UNWTO World Tourism Barometer of the year, international tourism closed 2023 at ~88% of pre-pandemic levels, with estimated ~1.3 billion international arrivals. UNWTO World Tourism Barometer gives a brief overview of the sector’s performance in 2023, assessing recovery by global region, sub-region and destination. The Middle East led this recovery in relative terms. It was the only region to overcome pre-pandemic levels as the region saw arrivals 22% above 2019. Europe touched 94% of 2019 levels, aided by intra-regional demand along with travel from the US.
Experts believe that stage is all set for resilience and rapid recovery of travel and tourism sector, with pre-pandemic numbers anticipated by 2024 end. Rebound is having a solid impact on several economies, jobs, growth and opportunities for communities.
Despite a range of economic uncertainties and geopolitical tensions, the travel & tourism sector continues to thrive. International tourism flows bounced back at a strong pace and should fully recover by 2024 end. That being said, recovery remained uneven, and challenges still remain.
After declining ~68.3% in 2020 – which was marginally below the drop of ~72.3% globally – by 2022-end, international tourist arrivals to OECD countries recovered to ~77.3% of 2019 levels. This was ahead of ~66.6% globally. OECD countries made up ~65% of international tourism arrivals in 2022, exhibiting a rise from ~56% in 2019. This highlighted stronger performance as compared to non-OECD countries since the COVID-19 pandemic.
2023 built the momentum, and evidenced that there is still an unwavering passion for travel. This paves the way for a strong year in 2024.
Future Prospects of Travel and Tourism Industry
The World Travel & Tourism Council expects record-breaking year for travel & tourism sector in 2024. Data suggests that the sector’s global economic contribution is expected to touch all-time high of $11.1 trillion. Travel & Tourism should be able to make additional contribution of $770 billion over the previous record. This will help the industry regain its stature of global economic powerhouse. By 2034, travel and tourism is expected to account for ~11.4% of the entire economic landscape, with the contribution as high as $16 trillion to broader global economy.
Tourism and hospitality is on the cusp of disruption. Shift in source markets and destinations, higher demand for luxury traveling, and innovative business strategies are expected to improve the industry landscape.
As per McKinsey & Company, China’s $744 billion domestic travel market has been categorized as the world’s 2nd largest. Even after the opening up of borders, Chinese travellers prefer staying close to home. Resultantly, domestic destinations continue to benefit. Changchun (known for Changchun Ice and Snow Festival) saw 160% year over year growth in visitors in 2023. In 2024, domestic travel during Lunar New Year surpassed pre-pandemic levels by ~19%. As a result of this, some Chinese travel and tourism stocks saw their share prices move northwards.
China’s domestic travel market should grow by ~12% annually and surpass the United States’ to be counted as the world’s largest by the year 2030.
One of the signs of increased demand in the travel industry is growth in aircraft orders in the aerospace industry. We covered this back in July in 10 Best Aerospace and Defense Stocks to Buy Now, here’s a short excerpt from that article:
“While sharing his insights on commercial aviation at the Morningstar Investment Conference in Chicago on June 26, Tony Bancroft from Gabelli Funds said that he had noticed a significant growth in aircraft orders lately, with both Airbus and Boeing having a 12-year backlog of orders. He believes there are three reasons driving it. The first catalyst, according to him, is China which accounts for 20% of the growth in orders to cater to the growing middle class in both China and India who want to travel more. Another critical factor he cited during his talk was that business travel has finally returned to the 2019 pre-pandemic level. Lastly, Tony highlighted the rising middle class in the United States, and the world, which is increasing air travel and contributing to the economic growth in the industry.”
With that, let’s take a look at the 10 Best Travel and Leisure Stocks to Buy Now.
10 Best Travel and Leisure Stocks to Buy Now
Our Methodology:
For this list, we sifted through 2 ETFs i.e., Defiance Hotel, Airline, and Cruise ETF and Amplify Travel Tech ETF. Then, we chose the companies with most hedge fund investors holding stakes in them, by using Insider Monkey’s Q1 2024 database. These stocks are in ascending order of hedge fund investors having positions in them.
“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).”
10 Best Travel and Leisure Stocks to Buy Now
10) Trip.com Group Limited (NASDAQ:TCOM)
Number of Hedge Fund Holders: 49
Trip.com Group Limited (NASDAQ:TCOM) is the largest online travel agent in China. The company is well-placed to benefit from rising demand for higher-margin outbound travel as passport penetration is just ~12% in China.
The company released its unaudited financial results for 1Q 2024. FY 2024 kicked off with significant rise in both domestic and outbound travel demand in China. This demand stemmed from stabilized supply and further relaxation of the visa requirements.
Revenues were US$1.6 billion, which were approximately in line with analysts’ expectations. Statutory earnings per share (EPS) crushed analysts’ expectations, with the figure reaching US$0.88. EPS was ~86% ahead of the estimates. Analysts at Citigroup upped their price target on shares of Trip.com Group Limited (NASDAQ:TCOM) from $53.00 to $55.00, giving it a “Buy” rating on April 1st. The consensus price target for the company’s shares is at $66.13.
During previous 3 years of stock price appreciation, the company was able to compound its EPS at ~37% per year. However, the average annual share price rise came in at ~11%. This is lower than overall EPS growth. Hence, investors became more cautious while building position in this stock. Moving forward, experts believe that Trip.com Group Limited (NASDAQ:TCOM) might see healthy growth.
Travel and tourism industry mainly gets support from overall economic growth. This fuels consumer demand for products. Trip.com Group Limited (NASDAQ:TCOM) should be supported by optimization of business processes, healthy strategic partnerships and digital initiatives. Furthermore, stable labor market, healthy consumer spending and growing disposable income are expected to act as growth enablers.
At the end of Q1 2024, 49 hedge funds tracked by Insider Monkey reported having stakes in Trip.com Group Limited (NASDAQ:TCOM).
9) Delta Air Lines, Inc. (NYSE:DAL)
Number of Hedge Fund Holders: 51
Delta Air Lines, Inc. (NYSE:DAL) is one of the world’s leading airlines, having a network of more than 300 destinations in over 50 countries.
The company released its financial results for the June quarter, in which its operating revenues were $16.7 billion and operating income was $2.3 billion. Even though the company’s revenues surpassed expectations, its statutory earnings fell short of analysts’ expectations by ~16%. For its September quarter, the company expects capacity growth of 5% – 6% and revenue growth of 2% – 4%, with sequential improvement in unit revenue trends through the quarter.
The company focuses on debt reduction and it continues to progress towards investment grade ratings. Notably, its gross leverage improved to 2.8x at the end of H1.
Analysts at HSBC initiated coverage on Delta Air Lines, Inc. (NYSE:DAL) on 13th May. They gave a “Buy” rating on the stock and a price objective of $72.80. It is being believed that its strong network and competitive edge at the key hubs remain as central factors for the positive outlook. The company’s strategic focus on premium segment might result in healthy operating margins.
In 1Q 2024, there were 51 hedge funds holding positions in Delta Air Lines, Inc. (NYSE:DAL) as per Insider Monkey database. The total value of these holdings is ~$1.80 million.
Delta Air Lines, Inc. (NYSE:DAL) is ranked 9th on our list of 10 Best Travel and Leisure Stocks to Buy Now. There are several factors that continue to affect aviation industry. Collectively, these are putting pressure on earnings. Higher competition from low-cost carriers impacted the company’s bottom-line as Delta Air Lines, Inc. (NYSE:DAL) had to go for discounted ticket prices.
Oakmark Funds released its first quarter 2024 investor letter, in which it mentioned Delta Air Lines, Inc. (NYSE:DAL). Here is what the company said:
“Delta Air Lines, Inc. (NYSE:DAL) is a leading global airline. Of the big three U.S.-based airlines (Delta, United and American), we see Delta as the most competitively advantaged. We believe the company’s years of industry-leading operational performance and investments in the customer experience have established Delta as the premium brand in the industry. We also think its geographically optimal hubs, high local market share, robust loyalty program and unique corporate culture all support healthy returns on capital. Delta currently trades at 6x our estimate of normalized earnings per share. We believe this is an attractive valuation for a competitively advantaged and growing business in an out-of-favor industry.”
8) Carnival Corporation & plc (NYSE:CCL)
Number of Hedge Fund Holders: 56
Carnival Corporation & plc (NYSE:CCL) manages portfolio of global, regional, and national cruise brands specializing in selling cruise products, services, and vacation experiences.
The company announced financial results for 2Q 2024. Its net income improved by ~$500 million as compared to 2023 and its adjusted net income outperformed March guidance by ~$170 million. The company improved its commercial operations, and strategically reallocated its portfolio composition.
Carnival Corporation & plc (NYSE:CCL) is seeing strong demand trends. As a result, the company’s net yields are now forecasted to top 10% and it continues to march towards double-digit returns on invested capital. For FY 2024, the company expects adjusted EBITDA of ~$5.83 billion, up ~40% as compared to 2023 and adjusted net income of ~$1.55 billion.
Carnival Corporation & plc (NYSE:CCL) currently trades at a P/E multiple of ~25.6x. What’s holding this stock? It’s a substantial increase in the company’s debt. The company had to take more debt to finance its operations during the COVID-19 pandemic. That being said, its debt should continue to come down considering the growth in its revenue and operating profits. Operating income saw the jump to $560 million in 2Q 2024, up ~5x over the same quarter in 2023. This was supported by favourable trends in pricing, demand, and operational costs.
As per Insider Monkey’s 1Q 2024 database, 56 hedge funds reported owning stakes in Carnival Corporation & plc (NYSE:CCL). These were valued at ~$1.49 million.