After identifying the most popular stocks among hedge funds (see our entire Top Ten here) according to their third quarter 13F filings, we have decided to break down the top five stocks that hedge funds love in the hotel industry. As a whole, the hotel industry is expected to see positive growth in the interim as demand grows in the low-single digits in 2012 and 2013; hotel room pricing and occupancy improved 3.7% and 4.4%, respectively, last year. Our list includes the hundreds of hedge funds and prominent investors that are required by the SEC to disclose their public equity holdings quarterly. In descending order, we have outlined the most-loved hotel stocks based on the aggregate number of funds owning each.
InterContinental Hotels Group PLC (NYSE:IHG) came in fifth with 12 filers owning the stock. InterContinental offers a solid dividend to investors at a 2.4% yield. This hotel company also trades at the cheapest P/E of all five of our hotel stocks at 13x, well below chief competitor Choice Hotels (16x). InterContinental has one of the best long-term expected EPS growth rates at a 15%, according to sell-side analysts. Key catalysts for the hotel stock should come from solid revenue per available room growth in Asia and disposal of underperforming assets in London and the U.S.
Marriott International, Inc. (NYSE:MAR) had 14 filers owning the stock, putting it in fourth – after a net decrease of 5 filers – the largest decrease of all five of our hotel stocks mentioned here. Marriott saw a solid increase in revenue per available room of 6.4% for 2011, with 2012 per room revenue expected to be up by a high single digit margin. Marriott also expects to open a net 25,000 rooms by the end of this year. The hotel does have more exposure to North America than its peers, which is a near-term positive given the prolonged slowdown across the Atlantic. Recent EPS figures for Marriott show a generally positive trend, as the company posted earnings of $0.44 per share last quarter, compared to $0.29 for the same period in 2011, and four cents above consensus. Billionaire and founder of Vinik Asset Management Jeffery Vinik is one of the top fund owners of Marriott (see all of billionaire Vinik’s newest picks here).
Hyatt Hotels Corporation (NYSE:H) had a total of 18 filers at the end of 3Q, putting it in third place. This global hotel company is relatively flat year to date and pays no dividend. Hyatt trades at the largest P/E of our five hotel stocks at 50x and is down over 5% year to date. We believe that hedge funds are encouraged by Hyatt’s growth prospects with international operations; EPS is expected to grow 15% annually over the next five years. Hyatt also does not currently pay a dividend, whereas its top peers do. Hyatt has accumulated nearly $1 billion of cash on hand and has been steadily growing cash flow from operations. Billionaire investor and founder of Citadel Investment Group Ken Griffin was one of the firms loving Hyatt, having upped his stake over 75% in 3Q (see all of Ken Griffin’s newest picks).
Starwood Hotels & Resorts Worldwide, Inc. (NYSE:HOT) came in tied for first with 32 filers and is one of the world’s largest hotel companies. Starwood has been pressured of late—down almost 10% since October—due to lower than expected hotel revenues. With a recent dividend increase of 150%, this hotel now pays a dividend that that yields the highest of our five stocks at 2.4%. Starwood has robust exposure to luxury markets that should see higher room rates and visitations based on a rebounding economy. Starwood also expects to drive longer-term growth with more expansion outside of the U.S., with over 90% of its development pipeline in markets outside of North America.
Wyndham Worldwide Corporation (NYSE:WYN) is the other top hotel stock loved by hedge funds with 32 filers. Wyndham expects 2012 revenues to be up almost 6% and revenue per available room to be up as much as 8% this year. The expected increase is in despite of slowing vacation exchange revenues due to exposure to European weakness, but the valuation is impressive for Wyndham; the stock is a solid value investment. Its trailing P/E comes in at 20x, but its forward P/E is 14x and below major peers Starwood (19x) and Marriott (23x) quite significantly. With a bullish expected long-term earnings growth rate of 18%, its PEG ratio comes in at 0.85. Wyndham saw billionaire Stephen Mandel of Lone Pine Capital as its top fund owner in 3Q (check out Mandel’s newest stock picks).
To recap: all of these hotel stocks have seen pressure over the past few years to do global uncertainty, which has put a damper on both personal and business travel. A rebounding economy and lower pricing by many of the industry’s players should help spur a recovery, while those with a great deal of international operations should perform well on the back of better diversification.
