We recently compiled a list of the 12 Most Undervalued Travel Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where The Walt Disney Company (NYSE:DIS) stands against the other undervalued travel stocks.
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%.
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).
A customer in a travel agents office, highlighting the convenience of the companies corporate travel solutions.
The Walt Disney Company (NYSE:DIS)
Forward P/E Ratio as of 13 September: 16.98x
Number of Hedge Funds: 92
The Walt Disney Company (NYSE:DIS) has theme parks and hotels which are categorized as the world’s premier vacation destinations. Its cruise ships remain popular and provide family-themed voyages.
Wall Street analysts believe that the company’s ownership of timeless characters and franchises, together with its ability to create and attract top-tier content should act as critical tailwinds. In the long term, considering the company’s market share and industry-leading characters, market experts believe that consumers should return to its movies, parks, and merchandise.
Moving forward, The Walt Disney Company (NYSE:DIS) plans to make robust investments in the United Kingdom and continental Europe. These should focus on producing movies and television shows for the big screen and streaming platform, Disney+.
Recently, Disney Cruise Line announced an order for 4 ships, which are expected to be delivered between 2027 and 2031. These are in addition to the 4 additional vessels which are already set to make a debut. Therefore, in the next 7 years, these eight vessels are expected to more than double the company’s 5-ship fleet. It seems that The Walt Disney Company (NYSE:DIS) has been betting big on its vacation-at-sea business. Amidst record bookings and demands across 2024, the company plans to exploit the market opportunity.
Since the cruise ships have the ability to pay back very quickly, the company remains optimistic about its investments in this business. The company has seen healthy demand in its cruise arm, with onboard spending witnessing an increase across the summer months.
As per Wall Street analysts, the average price target on the shares of The Walt Disney Company (NYSE:DIS) stood at $118.17. In 2Q 2024, 92 hedge funds held positions in the stock.
Mar Vista Investment Partners, LLC, an investment management company, released second quarter 2024 investor letter. Here is what the fund said:
“The Walt Disney Company’s (NYSE:DIS) shares declined after its earnings release, even though the company exceeded recently upgraded financial forecasts. While Disney+ and Hulu reached a milestone by turning their first quarterly profit, the company cautioned about theme park attendance returning to pre-pandemic norms. This signals a deceleration following a period of exceptional growth, impacting the stock as theme parks and experiences account for roughly 60% of Disney’s earnings. Despite broader consumer worries, Disney’s stock is still trading with a significant discount to fair value. We expect the gap between Disney’s market price and its intrinsic value to shrink as its streaming division evolves and increases profitability over time.”
Overall DIS ranks 2nd on our list of the most undervalued travel stocks to buy according to hedge funds. While we acknowledge the potential of DIS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that’s more promising than the stocks on our list, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
