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Come Fly with Me: Unlocking the Potential of Travel Industry Investments
This week, we're looking at the travel stocks that could help you to ride the industry's post-pandemic recovery.
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Happy Monday, and welcome to another edition of Investing Intel from the team at ValueTheMarkets! As always, the newsletter is packed with stock picks and investing insights we think you’ll enjoy, including:
👉 Three stock tips
👉 Investing signals
👉 Fear & Greed analysis
👉 Key dates for your diary
👉 Investment strategy insights
Sandy shores, city breaks and intrepid exploration. It’s always nice to take a break and have a change of scenery.
But we haven’t made the full transition to becoming a travel blog.
Instead, with summer now well on the way, we’re thinking of getting away from the hustle and bustle as we examine the travel industry. It’s a space that has had a rollercoaster over the last couple of years, with pandemic restrictions grounding fleets, causing havoc on cruise ships and trapping would-be travellers at home.
We’re going to be discussing three stocks which came out of the pandemic smelling of roses, and three others that had a torrid time.
Here’s what we’ve unearthed…
The Big Brand - Airbnb (NASDAQ: ABNB)
Airbnb responded quickly to the pandemic by introducing flexible cancellation policies and emphasizing long-term stays, appealing to people looking for work-from-home alternatives.
With international travel restrictions, many people turned to local or regional vacations, a segment where Airbnb has a strong presence.
Airbnb's strong brand recognition and user base helped it maintain a level of demand despite the travel downturn during the pandemic.
This has led the business to strong financial growth, with last year’s record revenues and 40% annual sales growth leading Airbnb to swing to positive net income for the first time.
Additionally, Airbnb had a successful IPO in December 2020, signalling strong investor confidence in its business model despite the chaos and uncertainty of the pandemic.
The Jack of All Trades - Booking Holdings (NASDAQ: BKNG)
Booking Holdings has huge reach, operating major travel comparison and booking websites such as Booking.com, Priceline.com, Agoda.com, Kayak.com, Cheapflights, Rentalcars.com, Momondo, and OpenTable. In total, the company operates websites in about 40 languages and 200 countries.
This wide range of services, which includes hotel, flight, and car rental bookings, has served to diversify the company’s offering and helped it weather the downturn.
As an online travel agency, Booking has been well-positioned to capitalize on the trend of consumers shifting to online bookings.
The business entered the pandemic with a strong balance sheet, allowing it to withstand the financial stress caused by the downturn.
Booking Holdings is profitable, and its latest quarterly earnings showed 42% revenue growth as the travel industry recovered from its pandemic slump.
The Budget Airline - Allegiant Travel Company (NASDAQ: ALGT)
Allegiant's focus on domestic US flights allowed the company to maintain operations while international travel was severely restricted and could ensure the business is more resilient in the current cost of living crisis.
Allegiant's low-cost business model also made it more resilient to the financial impact of the pandemic and current economic hardship.
Allegiant's focus on leisure travel, as opposed to business travel, positioned it well as leisure travel has recovered faster.
Strong financial performance has followed, with Allegiant’s most recent quarterly earnings showing a 29.9% increase in revenue and net income of $56.1m compared with a loss of $7.9m in the same period 12 months prior.
Despite supply chain constraints and challenging macroeconomic conditions, the business has upgraded its full-year guidance. This is driven by lower anticipated fuel costs and projections for a 99.5% controllable completion rate of its flights.
While we’ve examined three travel stocks with a lot to like, who came out of the pandemic strongly. Here we’re going to delve into three which struggled during the COVID-19 crisis, with the disaster throwing issues into sharper focus. Even so, some of these stocks now appear to be bouncing back…
American Airlines (NASDAQ: AAL)
Having entered the pandemic with higher debt levels and less cash than its peers, American Airlines was more vulnerable to the crisis.
The global shutdown of non-essential travel meant that American Airlines, which has a substantial international and business travel footprint, saw its revenue seriously suffer.
Maintaining and storing the company’s enormous fleet during the pandemic was a costly endeavour.
The company missed expectations with its recent earnings, but its share price has still climbed by more than 20% across the year to date. However, there is still some way to go before it reaches pre-pandemic levels.
Carnival Cruise Line (NYSE: CCL)
The pandemic period was disastrous for Carnival as it was, like other cruise lines, forced to suspend its operations due to travel restrictions, leading to a significant revenue drop. With its ships being docked, the company also had to bear high fixed costs.
After COVID-19 outbreaks on several ships, the cruise industry, including Carnival, faced challenges in regaining customer trust.
The uncertainty regarding when cruising can fully resume impacted Carnival's recovery and the business has not yet bounced back to pre-pandemic levels of profitability.
However, the share price has performed well this year (despite still being far below levels seen in early 2020) and JPMorgan recently upgraded the stock due to perceived strength in consumer demand for cruises.
TripAdvisor (NASDAQ: TRIP)
As a travel advice and booking platform, TripAdvisor saw a massive decline in users and revenues during the pandemic due to travel restrictions.
TripAdvisor has a high dependence on advertising. The downturn in the travel industry also led to a decline in advertising spending, further impacting the company’s revenues.
The business has suffered from a slow recovery and has not achieved consistent profitability in the post-COVID era. TripAdvisor is investing in its growth, but the company’s lack of ability to translate industry recovery and rising sales into profit is a concern.
Unlike many industry contemporaries, the stock has failed to make gains across the year to date. Instead, its share price has dropped by almost 10% since the start of January as investors appear dissatisfied with struggling earnings.
As usual, we are also taking a look at some of the last week’s hottest equities. Our top five notable picks from the past week in terms of Reddit mentions are:
Palantir (NYSE: PLTR)
Agora (NASDAQ: API)
Goldman Sachs (NYSE: GS)
Carnival Cruise Line (NYSE: CCL)
Carvana (NYSE: CVNA)
Palantir tops the list as the latest business to incite AI fervor among investors, with Chief Executive Officer Alex Karp stating the business’ tech was so powerful he was unsure if it should even be sold to customers.
Chinese tech outfit Agora and banking giant Goldman Sachs has also been generating chatter, with the latter suffering as Twitter’s failure to pay rent adds to already substantial commercial real estate losses.
Carnival Cruise Line, which we have already touched on in today’s newsletter, has enjoyed a 20% increase in share price over the last week as investors became excited about a rebound in the company’s fortunes.
Finally, online vehicle retailer Carvana saw its share price slide as analysts appeared to dismiss the business’ rosy Q2 outlook as an anomaly.
Fear & Greed
The Fear and Greed Index is a measure of stock market sentiment calculated by CNN Business using seven measures, including market momentum, market volatility, and safe haven demand. It’s meant to shed light on the emotions currently driving the market, giving you insight into how traders are making decisions. Remember, traders are humans, not robots.
As you can see from the graphic below, the index has barged its way into extreme greed this week. This has been catalysed by stock price strength and strong market momentum, with the S&P 500 pushing well above its rolling average of the prior 125 trading days.
Dates in the Diary
Monday 12th – Consumer Inflation Expectations (May)
Tuesday 13th – US Inflation Data (May) / UK Employment Data (Apr)
Wednesday 14th – US PPI Data (May) / FOMC Economic Projections / Eurozone Industrial Production Data (Apr) / UK GDP Data (Apr)
Thursday 15th – US Retail Sales (May) / US Industrial Production (May) / ECB Interest Rate Decision
Friday 16th – Michigan Consumer Sentiment (Jun) / Eurozone Inflation Data (May)
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Investing Strategy Ideas: CAN SLIM
This week’s investing strategy spotlight is pointed at CAN SLIM.
It might sound like the latest Weight Watchers competitor, but it's actually a method some investors use to fill out their portfolios.
The method, which was popularized by Investor's Business Daily founder William J. O'Neil, is a growth stock investing strategy that incorporates both fundamental and technical analysis to identify leading stocks before they make major price advancements.
Here's a breakdown of the CAN SLIM acronym and how it works:
C - Current Quarterly Earnings per Share: The company should show a significant increase in quarterly earnings per share. A 25% or higher increase is considered excellent.
A - Annual Earnings Growth: The company should have a solid record of annual earnings growth for the last five years. An annual growth rate of 25% or more is a good benchmark.
N - New: The company should be offering new products, services, or management. Or it could be reaching new highs in stock price. The premise is that new situations often spark significant stock price increases.
S - Supply and Demand: Big-volume demand for the stock indicates institutional buying, which can drive up the price. By watching the trading volume, investors can get a sense of the overall demand for a stock.
L - Leader or Laggard: Buy market leaders and avoid laggards. The relative strength of a stock is a key factor.
I - Institutional Sponsorship: It's good to see some sponsorship from big institutions, like mutual funds, banks, or other large investment entities which can provide the necessary capital to drive a stock's price higher.
M - Market Direction: Even a great company's stock can't fight the overall market direction. If the general market is in a downtrend, it's tough for most stocks to move up.
It’s important to bear in mind that this strategy is best suited for those looking to actively manage their portfolio, as it requires time, patience, and a willingness to analyze various data points. In short, CAN SLIM is not for investors who want to chuck their money behind a stock and then sit back and watch the returns roll in!
Until Next Time!
Many thanks for taking the time to read Investing Intel today. We hope you’ve enjoyed our insights and are looking forward to more in the week ahead.
Have a good week!
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