Travel companies will often see their profits evaporate into thin air during tough times. So at what point can we allow our leisure investment plans to move freely about the cabin, or in this case, ship deck or hotel lobby?
My advice is to swim with caution, as there is no life preserver available right now on Wall Street. Still, the onset of a recession may present some attractive buying opportunities for investors.
Carnival Corp. (CCL)
SNAPSHOT: Operates cruises, vacation packages, hotels, lodges, tourist motor coaches, charters, tourist rail cars and sightseeing day boats. The company owns 85 cruise ships in North America, Europe, Australia, and New Zealand.
- Trading at 13 times earnings, Carnival’s shares have certainly not lost their moorings. Sprinkle in a nifty 3.8% dividend, and investors might have a stock to christen at the right price.
- The stock has the equivalent of a circus net supporting it at or around the $40 per share level. However, if this level of support caves in, you might be better off taking a slow boat to China.
- A recent article in Barron’s suggests that Carnival’s shares are giving investors the opportunity to say, "All aboard!" The financial publication believes that Carnival will navigate out of the current choppy waters, with upside potential of 50% for the stock, thanks to an increased focus on international sales and customers.
- If insider selling is a tell-all indicator, it should be noted that Carnival’s Princess Cruise President Alan Buckelew sold 4,575 shares and surrendered another 2,547 shares back to the company, as a means of either covering taxes or the costs of exercising the shares.
- You have to be nimble with Carnival, as buy-and-hold investors have been burned by the stock. In fact, if you had invested in Carnival in 2004 and sold the shares today, you’d have nothing to show for it. While Carnival has certainly not been a safe harbor for long-term investors in recent years, those that bought and then sold at a targeted profit level would have made a big splash.
- Shares have really walked the plank over the last year, falling 11%, which is virtually double the S&P 500’s free fall.
Marriott International (MAR)
SNAPSHOT: Operates and franchises hotels, lodging facilities and corporate housing properties under 15 brand names worldwide. The company also sells timeshare intervals, fractional ownership, and residential properties.
- Foreign visitors spent $113 billion for the first 11 months of last year in the United States-a 13% year-over-year jump. Those kinds of numbers are welcome news for hotel chains such as Marriott, which caters to the foreign visitor in the U.S. and to international hotel guests worldwide.
- From a price-to-sales basis, Marriott stock is as cheap as a late-night stay at the Motel 6-trading at merely 0.96 times revenues. That share price is peanuts for a multinational, name-brand company like Marriott.
- While the current quarter will likely look worse than an overcooked hotel breakfast thanks to an expected 17% plunge in earnings, the rest of the year is forecasted to show about 7.4% growth-followed by a projected 18% growth spurt next year.
- The company pays a measly 0.8% dividend yield. That wouldn’t even cover the cost of a maid changing your bed linens.
- Despite freefalling nearly 60% over the past year, the stock still trades at 19 times earnings, which is a bit high for a recession re-entry point.
- Speaking of insider selling, none other than Marriott International Chairman J. Williard Marriott – yes, J.W. Marriott, Jr. – unloaded 45,000 shares recently. No word yet if the shares had checked out before 11 a.m., or left their keys in the room.
Starwood Hotel & Resorts Worldwide, Inc. (HOT)
SNAPSHOT: Operates luxury and upscale full-service hotels, retreats, residences, timeshares and the financing of its fractional ownership properties, in addition to sales of residences in multi-purpose hotel properties.
- Starwood’s shares have been incredibly "hot, hot, hot" since bottoming out in January-climbing a mind-boggling 47%-in this weak stock market. As sportscaster Dick Vitale would say, "Are you kidding me?"
- The company’s investment in timeshares is actually expected to be a boost as supply has far outstripped demand for units across the industry. Many tourists see fractional ownership of vacation properties as a value proposition, although some see it more as a mortgage on your vacation.
- The rumor mill is in full swing after real estate king pin Sam Zell recently bought 8% of the company’s shares. This comes ahead of talk that a Middle Eastern investor wants to buy Starwood’s entire inventory of shares outright.
- Revenue per available room at same-store operations-a key industry growth measure-will need to call the hotel operator for help, as it is expected to fall from 10% growth to somewhere between 4-to-7% this year.
- The company projects a three-year time frame to upgrade its units, which are widely viewed as staid and in need of refurbishing. With occupancy industry-wide expected to fall nearly 1% this year due to the economic slowdown, the hotel will likely suffer a double whammy of decreased demand, along with less than desirable construction headaches for its guests.
- Starwood’s high-profile Sheraton brand will open one new hotel every 12 days worldwide this year, so those upfront expenses will cut into its profits at least temporarily. The company is spending $2 billion on hotel openings in North America alone, and plans to add another $1.3 billion in renovations for existing hotels and $400 million for branding.
Michael Abramowitz is a freelance writer based in Florida. To avoid conflict of interest, he does not currently own any of the stocks mentioned above.
Price quotes are from April 28, 2008.
© 2008, Young Money Media, LLC. All rights reserved.