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number cruncher

What are we looking for?

U.S. travel and hotel stocks that offer profitability and financial health, along with enticing valuation prospects.

The screen

The United States, the world’s largest travel and tourism market, experienced a staggering decline during the onset of the pandemic in 2020. Travel spending in the U.S. was 38.4 per cent lower than the previous year, and large hotel chains such as Marriott and Hyatt were forced to furlough most of their work forces. The future of the industry appeared grim, and valuations for travel stocks deteriorated, demonstrated by the Morningstar US Travel & Leisure Capped Index, which plummeted 44.9 per cent from December, 2019, to March, 2020, much worse than the S&P 500′s dip of 20 per cent in the same period.

However, over the past two years, there has been a remarkable resurgence in demand for travel, both within the U.S. and globally. Travel spending for 2023 in the U.S. is forecast to reach 93 per cent of 2019 levels and prepandemic levels by 2025. Many stocks have recovered, with the Travel & Leisure Capped Index up 70 per cent from its low in March, 2020. Today, I use Advisor Workstation to explore stocks in this revitalized industry with favourable profitability, financial health and valuation attributes.

Specifically, I screen for U.S. stocks in the travel service and hotel industries with the following attributes:

  • a positive return on assets. This measures profitability and accounts for debt, where measures such as return on equity can be inflated due to companies with high leverage;
  • a minimum market capitalization of at least $1-billion, to weed out very small companies;
  • a Morningstar rating for financial health of C or better. The rating is a proprietary measure that reflects a company’s financial well-being through an assessment of its leverage and cash position;
  • a Morningstar Quantitative Rating for stocks of 3 or higher on a scale of 1 to 5, where the higher number represents the stock is more undervalued.

More about Morningstar

Morningstar Research Inc. provides independent investment research in North America, Europe, Australia and Asia. Morningstar Advisor Workstation gives financial advisers tools for investment planning, portfolio analysis, securities research and sales presentations.

What we found

U.S. Travel Stocks

Airbnb Inc Ordinary Shares - Class AABNB-QTravel Services116.9574,623.9122.963B11.43-
Booking Holdings IncBKNG-QTravel Services2,788.2599,518.72,856.823A17.46-
Choice Hotels International IncCHH-NLodging111.525,618.1127.585B13.930.90
Expedia Group IncEXPE-QTravel Services94.9513,612.5130.404C3.57-
Hilton Worldwide Holdings IncHLT-NLodging151.2838,794.3151.053A8.610.40
Hyatt Hotels Corp Class AH-NLodging101.4710,637.6122.875B3.550.28
MakeMyTrip LtdMMYT-QTravel Services37.694,000.143.434A1.26-
Marriott International Inc Class AMAR-QLodging188.0956,095.9183.613B11.210.94
Royal Caribbean GroupRCL-NTravel Services85.8622,000.4107.585C2.78-
Travel+Leisure CoTNL-NTravel Services33.592,432.642.204C5.494.76
Wyndham Hotels & Resorts Inc Ordinary SharesWH-NLodging71.605,940.183.205B7.121.97

Source: Morningstar

The travel and hotel stocks that met the above screening criteria are listed in the accompanying table, with details on profitability, market cap, financial health and valuation.

With cost of living cooling and travel traffic near prepandemic levels, undervalued and financially healthy travel stocks deserve consideration for inclusion in well-structured portfolios. However, uncertain global economic conditions fuelled by war in the Middle East, along with the notion that interest rates will remain higher for longer, makes it ever more important for prudent stock selection. As always, investors should conduct their own independent research before purchasing any stocks listed above.

Michael Pe, CFA, is a senior product manager for Advisor Workstation at Morningstar Research Inc.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 4:00pm EDT.

SymbolName% changeLast
Airbnb Inc Cl A
Booking Holdings Inc
Choice Hotels International
Expedia Group Inc
Hilton Inc
Hyatt Hotels Corp
Makemytrip Ltd
Marriot Int Cl A
Royal Caribbean Cruises Ltd
Travel + Leisure Co.
Wyndham Hotels & Resorts Inc

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