Make no mistake about it, travel and tourism is big business. It accounts for 10% of global GDP. Hotel stocks have enjoyed a nice run since the 2008 financial crisis. However, it faces a challenging environment as interest rates are set to rise it could derail or slow down the economy. Airbnb, an industry threat, is expected to IPO in 2019.
Airbnb’s website lets almost anyone make their home (or part of it) available for short-term lodging. At 5 million listings, it has more than the top five major hotel brands combined. But Airbnb is just one concern the hotel industry.
The prices of hotel stocks can fluctuate for many factors, they include:
The health of the economy: A strong economy should lead to greater tourism and have a positive impact on hotel revenues. Economic indicators worth monitoring include retail sales, consumer spending, consumer confidence, and employment situation.
The price of oil is another factor that influences the travel industry. If oil prices rise, they could push airline prices higher which makes traveling more expensive for the consumer.
The hotel industry is centuries old; however, new technology may help hotel stocks profit more. You see, online travel agencies have become extremely popular over the last decade because of their convenience. But when you book a hotel through an OTA, the hotel pays a commission to the online travel agency.
That said, blockchain technology could help eliminate third-party costs in the future, encouraging a direct relationship between the hotel and the consumer.
As you can see, there are several moving pieces to this mega-important sector. That said, here’s a list of the best hotel stocks in the market today.
Best Hotel Stocks To Buy
With more than 46 hotels, trains, and river cruises in 24 countries, Belmond (NYSE: BEL) offers an experience to its customers.
The company offers a collection of curated travel adventures located in the United Staes, Mexico, The Caribbean, Europe, South Africa, South America, and Southeast Asia. Its portfolio of hotels includes 3,203 individual guest rooms and multiple-room suites.
With more than 29 brands to its name, Marriott International (NASD: MAR) is one of the most significant players in the space. The company has over 6,700 properties across 130 countries. In 2017, the firm generated more than $22B in revenues.
From 2013 to 2017, Marriott has been able to increase its revenues. The company is a member of the S&P 500 and offers investors a dividend of $1.64 per share.
Now, one of the fast-growing hotel stocks has been China’s Huazhu Group Limited (NASD: HTHT). Its brands include Hi Inn, Han Ting Hotel, Elan Hotel, Orange Hotel, HanTing Premium, Starway Hotel, Ji Hotel, Orange Hotel Select, Manxin Hotel, Crytal Orange Hotel, Joya Hotel, Grand Mercure, Novotel, Mercure, Ibis Styles, and Ibis brand names.
At the end of 2017, the company had 671 leased and owned hotels and 2,874 manachised hotels. The company has been able to grow sales from 2013 to 2017. However, it wasn’t till 2017 when investors started to pile into the name.
Insiders own a large percentage of this stock, more than 50%, sign management believes in the company.
Investing In Hotel Stocks — REITs
Another way to gain exposure to the hospitality industry is by investing in REITs. Summit Hotel Properties (NYSE: INN) owns over 77 hotels with a total of more than 11k guestrooms in 26 states.
source: Summit Hotel Properties
Its brand partners include Marriott, Hilton, Hyatt, and IHG.
The REIT offers an attractive dividend to investors, at $0.72 per share.
Hospitality Properties Trust (NASD: HPT) owns a diverse portfolio of hotels and travel centers located in 45 states. The hotels it owns range from midscale to upscale service and extended stay hotels and upscale to luxury full-service hotels.
Its brand partners include Holiday Inn, Hyatt Place, Courtyard Marriott, Crowne Place, Residence Inn and much more.
The REIT offers a handsome dividend of $2.10 per share.
How To Trade Hotel Stocks
The most important consideration a trader should have is liquidity. Is the stock or ETF you’re trying to trade liquid?
How can you tell?
One way is by looking at the bid/ask spread. An actively traded stock will have a competitive spread. Try trading stocks that do a million shares or more of volume. The most actively traded hotel stocks include Hilton Worldwide (NYSE: HLT), Marriott International (NASD: MAR), and Park Hotels & Resorts Inc. (NYSE: PK)
Hotel stocks have been historically more volatile than the S&P 500. However, they are not nearly as unpredictable as tech stocks like Facebook (NASD: FB), Twitter (NYSE: TWTR), and Square(NYSE: SQ).
You can gauge how volatile a stock is by reviewing its historical volatility as well as looking at the options implied volatility. You can buy and sell options on stocks like Marriott International, Hilton Worldwide, InterContinentel Hotels Group, Hyatt Hotels Corporation, Huazhu Group Limited, Park Hotels & Resorts, Wyndham Hotels & Resorts, Choice Hotels International, Wyndham Destinations, Belmond, and Red Lion Hotels.
Trading options allow you to be more strategic. For example, when you buy a stock, you only make money if the stock price rises. However, with options, you can put on trades that don’t have a directional bias. Instead, they are volatility bets.
Hotel stocks face many challenges moving forward. For example, Airbnb’s 2019 IPO could have a negative impact on hotel stocks. Besides, an ongoing tug of war between online travel agencies.
However, blockchain technology could help hotels reach directly to the customer, eliminating third-party services.
Maybe a visionary, Expedia’s former CEO, Dara Khosrowshahi left the company in 2017 to join Uber despite him being one of the highest paid CEO’s in the world.
Ironically, Uber was receiving bad press for its toxic work culture. Uber founder Travis Kalanick resigned as CEO because he couldn’t manage the publicity nightmare.
REITs offer an exciting way to play hotel stocks and pay a handsome dividend. If you want to invest in hotel stocks, make sure to pay attention to economic reports. Clearly, a strong economy should lead to greater tourism and more hotel revenues.
On the other hand, if it looks like the sector is slowing down because of poor economic numbers than you might consider using options to hedge.