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What are we looking for?

Hospitality stocks with profitable operations and compelling valuations that have had recent price declines because of coronavirus fears.

This is a time of year when many Canadians spend a lot of their hard-earned vacation time in hotels, resorts and cruises. Travel and leisure stocks are dependent on the economic cycle and are tied to consumer confidence and discretionary spending. The Consumer Discretionary Select Sector SPDR Fund (XLY-NYSE) is up 3.8 per cent in the past month and remains near record highs. However, the travel and tourism subsector is down 3 per cent in the same period. The coronavirus has caused halts in cruise, gaming and resort operations all over China, which in turn has put pressure on some of the largest travel and leisure companies’ share prices. This week, we look for value in the travel and leisure industry amid a pullback in the sector.

The screen

We will be using Trading Central Strategy Builder to search for hospitality stocks with rising earnings and profitable operations during a price pullback.

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We will start by screening for travel and leisure stocks with a market capitalization of US$1-billion or more. This will limit our results to the largest and most stable companies in the industry. To find companies with positive long-term earnings growth, we will filter for five-year historical growth in earnings per share of 15 per cent or more.

To ensure we are purchasing companies with profitable continuing operations, we will also include a criterion for operating margin of 10 per cent or greater. Operating margin is a measure of how much profit the company makes on each dollar of core revenue. Higher operating margins are preferred.

Finally, we will only search for companies with a negative year-to-date return in order to find value from the recent decline owing to coronavirus fears.

We have also included the price-to-earnings ratio, one-year return and dividend yield for reference.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities. Strategy Builder is available through leading retail brokers in Canada and worldwide.

What we found

Topping our list is Norwegian Cruise Line Holdings Ltd., which has the best five-year historical EPS growth rate of 54 per cent. The company has beaten analyst estimates over the past four earnings announcements. The stock has declined more than 8 per cent year-to-date. One interesting note – Norwegian is currently offering an onboard credit for shareholders who own at least 100 shares of the company’s common stock.

Six Flags Entertainment Corp. has the highest operating margin on our list at 35.7 per cent, while the company’s share price has been put under considerable pressure, having declined 13.9 per cent year to date and 35.1 per cent over the past year. On Feb. 20, the company is expected to report fourth-quarter earnings of approximately US$260-million compared with US$269-million in the same period last year, which could add some volatility to the share price. Is it time for a rebound in this depressed stock? With the recent price action, a tight stop-loss at recent lows around the US$35 level with a target near the stock’s 200-day moving average around US$49 could be an idea for those who like bottom-up plays. Six Flags has the highest dividend yield on our list at 8.5 per cent.

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The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Eight hospitality stocks

RankCompanyTickerMkt. Cap. (US$ Bil.) Operating Margin (%)5Y Hist. EPS Growth (%)P/EYTD Return (%)1Y Return (%)Div. Yld. (%)Recent Price (US$)
1Norwegian Cruise Line HoldingsNCLH-N11.320.15412.2-8.61.6n/a53.08
2Wyndham Destinations Inc.WYND-N4.413.31610.6-5.111.53.749.09
3Hilton Grand Vacations Inc.HGV-N2.821.71911.4-6.24.1n/a32.30
4Royal Caribbean Cruises Ltd.RCL-N24.119.03213.1-13.50.52.7115.40
5Marriott International Inc.MAR-Q48.211.32238.9-2.626.01.3147.43
6Booking Holdings Inc.BKNG-Q81.136.01820.0-5.51.1n/a1,937.00
7Carnival Corp.CCL-N29.316.02310.2-14.6-20.74.643.30
8Six Flags Entertainment Corp.SIX-N3.335.72212.3-13.9-35.18.538.80

Trading Central

Gary Christie is head of North American research at Trading Central in Ottawa.

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