In this article, we will discuss 12 Most Undervalued Travel Stocks to Buy According to Hedge Funds
The travel industry has rapidly evolved, with the leading businesses witnessing healthy growth and strong profit margins. The shift in source markets and destinations, increased demand for experiential and luxury travel, together with innovative business strategies continue to dramatically alter the industry landscape. Much of the travel demand is close to home. As per McKinsey, globally, domestic travel should grow ~3% annually, touching 19 billion lodging nights per year by 2030.
This is particularly true for the US, the world’s largest travel market. Around 68% of trips initiated in the US are to destinations within the country. Despite inflation and record costs weighing over Americans’ travel budgets, most of them will continue to travel. Most American consumers rank travel, domestic and international, as their “highest-priority” areas when it comes to discretionary spending.
Rise of Experiential Travel
Travel experts believe that there has been a growing focus on experiences as compared to material goods.
The demand for experiential travel should continue to rise heading into 2025 because consumers are prioritizing unique and memorable encounters over traditional travel consumption. This shift cannot be tagged as a passing trend, but it’s transforming the global tourism landscape. McKinsey believes that the experiential travel market should exceed ~$3 trillion by 2025. The growth should primarily be seen off the back of an increasing share of consumer spending on experiences like entertainment, adventure travel, and personalized excursions.
WNS believes that ~87% of the people globally agree that having a trip booked in the future provides them something to look forward to. With the pent-up demand unleashing, the upcoming 5 years are expected to see elevated expectations among travelers as they plan to make up for the lost time. Despite a bumpy ride for 4 years, the international tourist arrivals should touch pre-pandemic levels in 2024. However, inflationary concerns, climate change, and geopolitical tensions might keep the sector in a difficult spot.
Some countries and governments have done a better job in minimizing such risks and maximizing travel and tourism potential as per the Travel & Tourism Development Index 2024, published last month by the World Economic Forum.
What Are the Trends Shaping for Travel Sector?
As per the United Nations World Tourism Organization (UNWTO), international tourism should fully recover to pre-pandemic levels in 2024. UNWTO expects that there is still a significant headroom for recovery across Asia. Chinese outbound and inbound tourism should ramp up in 2024 as a result of visa facilitation and improved air capacity.
Total international arrivals are expected to significantly increase over the upcoming 2 years and will surpass pre-pandemic 2019 visitation in 2025 (as per the International Trade Administration). Total international arrivals should see an increase of 16.8% to 77.7 million in 2024, 9.7% to 85.2 million in 2025, and an increase of 7.0% to 91.1 million in 2026.
Since the bulk of travel spending remains close to home, McKinsey mentioned that 75% of travel spend is domestic. The US has been tagged as the world’s largest domestic travel market, with China well-placed to overtake it in the coming years. New markets like India, Southeast Asia, and Eastern Europe are the growing sources of outbound tourism. The travel spending of Indians should grow by 9% per year between now and 2030, with annual growth projections for Southeast Asians and Eastern Europeans coming at ~7% for both. Just like the launch of a jet engine significantly reduced travel times, AI continues to change the fundamentals of the travel industry.
As per estimates by McKinsey Digital, companies that holistically address digital and analytics opportunities can experience an earnings improvement of up to ~25%.
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Our methodology
To list the 12 Most Undervalued Travel Stocks to Buy According to Hedge Funds, we used a Finviz screener to filter the stocks catering to the relevant industries and also looked into travel ETFs and online rankings. We gathered a list of 20 stocks and then narrowed our list to stocks that were trading at less than the forward earnings multiple of ~22.56x (since the broader market trades at ~22.56x). Finally, we ranked the stocks in ascending order of the number of hedge funds that have stakes 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).
12 Most Undervalued Travel Stocks to Buy According to Hedge Funds
12) Monarch Casino & Resort, Inc. (NASDAQ:MCRI)
Forward P/E Ratio as of 13 September: 15.50x
Number of Hedge Funds: 14
Monarch Casino & Resort, Inc. (NASDAQ:MCRI), with the help of its wholly-owned subsidiary, owns and operates the tropically-themed casino resort in Reno, Nevada.
Industry veterans believe that Monarch Casino & Resort, Inc. (NASDAQ:MCRI) is well-positioned to see strong growth as a result of its several competitive advantages. These include convenient locations and a focus on customer service. The company is in strong markets with opportunities to expand the top line. Its well-crafted entertainment options, and luxurious accommodations, together with its customer-centric approach should continue to act as pillars in fortifying its position in the broader industry.
Strategic expansions into untapped markets or the launch of new services are expected to fuel growth and revenue streams for the company. Recently, International Game Technology PLC (NYSE:IGT) has partnered with Monarch Casino & Resort, Inc. (NASDAQ:MCRI). As part of this collaboration, Monarch Casino & Resort, Inc. (NASDAQ:MCRI) rolled out a mobile sportsbook app, Atlantis NV Sports, which uses IGT PlaySports technology. This technology stack is regarded as one of the most versatile B2B sports betting technology stacks in the US. With this collaboration, Monarch Casino & Resort, Inc. (NASDAQ:MCRI) now has an ideal sports betting offering that will drive incremental player engagement.
Its competitive advantage is derived from its product offerings, and the personalized experiences the company crafts for its guests. The company released its 2Q 2024 financial results, with a continued focus on operational efficiency leading to an improvement in the adjusted EBITDA margin to 34.3% from 34.1% in the same period of the previous year.
In 2Q 2024, there were 14 hedge funds that held positions in the stock with total stakes amounting to $39.4 million.
11) Hilton Grand Vacations Inc. (NYSE:HGV)
Forward P/E Ratio as of 13 September: 11.44x
Number of Hedge Funds: 27
Hilton Grand Vacations Inc. (NYSE:HGV) develops, markets, and manages timeshare resorts. It provides vacation ownership intervals and manages resorts located in leisure and urban destinations.
Hilton Grand Vacations Inc. (NYSE:HGV) is expected to benefit from a favorable competitive position as one of the largest timeshare operators along with its healthy profitability and cash flow profile. The company enjoys economies of scale and enables third-party marketing relationships which should help it in achieving revenues and earnings growth.
Hilton Grand Vacations Inc. (NYSE:HGV) appears to be well-placed in the high-end spectrum of the timeshare industry and it possesses a diversified portfolio of vacation ownership brands. Its long-term growth trajectory is further supported by the integration of Diamond Resorts. This broadens Hilton Grand Vacations Inc. (NYSE:HGV)’s addressable market via an expanded regional network in the US and a broad range of products and price points.
The company enjoys exclusive rights to the “Hilton” name for the timeshare business on a 100-year license. It also has access to ~195 million members who are part of the Hilton Honors program, which has been tagged as one of the sector’s strongest loyalty programs. These loyalty programs are of utmost importance for such chains, as they drive repeat business, resulting in repeat selling opportunities.
As per Wall Street analysts, the average price target on the shares of Hilton Grand Vacations Inc. (NYSE:HGV) stood at $45.20. As per Insider Monkey’s database, 27 hedge funds reported owning stakes in the company.
Laughing Water Capital, an investment management company, released its second-quarter 2024 investor letter and mentioned Hilton Grand Vacations Inc. (NYSE:HGV). Here is what the fund said:
“Hilton Grand Vacations Inc. (NYSE:HGV) – I estimate that HGV, our time share business, is trading at a ~25% free cash flow yield and buying back ~10% of its market cap annually. This is a formula that will eventually work very well, unless people decide to stop going on vacation.”