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With more daylight hours and – in theory – better weather, Brits’ thoughts are always on holidays. And there are many travel stocks registered in the UK that can benefit from the dreams and desires of travelers!
So we asked two idiots to name their favorite stocks in the sector right now, and why. As always, remember that returns are not guaranteed and past performance is not a reliable indicator of future results.
easyJet has more room to climb
By John Choong: One of the biggest winners in the FTSE this year is easyJet (LSE: EZJ). Shares have risen by an impressive 50% and up 75% from the low of October. And while the consensus is to buy low and sell high, easyJet shares are still nowhere near where they were before the pandemic. In fact, they are still down 60% – so I still see the current share price as a buying opportunity.
The hot momentum that fueled a steep rise for travel stocks earlier this year may be fading. However, investors should not take this as a sign of reduced demand. In easyJet’s latest trading update, CEO Johan Lundgren cited strong booking momentum in the summer, and expects the budget airline’s capacity to continue to grow throughout 2023, with a return to pre-Covid levels in September.
More exciting, the company is up and coming holiday section (where customers can book packages), prove to be a huge driver for revenue growth and should help expand the firm’s margins. And with fuel costs also expected to decline this year, this should help easyJet’s earnings, which are forecast to come in at 27.9p per share, an increase of almost 250%. That said, there is always the risk that fuel prices rise again or that the recession is deeper than anticipated, which could reduce forward orders, and reduce stocks.
And although the Shares have risen dramatically this year, the stock price many times remains cheap and comfortably below the industry average.
| Metric | easyJet | Industry Average |
| P/B value | 1.5 | 1.8 |
| P/S system | 0.6 | 0.8 |
| FP/S ratio | 0.5 | 0.7 |
| FP/E ratio | 20.1 | 29.1 |
What’s more, the group has strong finances, which makes it difficult to find travel stocks, especially after the pandemic. The balance sheet has strong liquidity (£3.64bn) which sufficiently covers debt (£3.20bn) and has positive free cash flow (£246m). Thus, I see easyJet shares as the best FTSE travel stocks out there.
John Choong owns shares in easyJet.
Cheap, stable and global: Marriott bounces back
By Mark Tovey. When it comes to travel stocks, I buy Marriott International (NASDAQ: MAR) like the presidential suite order.
The hotel industry provides a more consistent revenue stream than the airline industry. Fuel price spikes, cut-throat competition and even volcanic eruptions can send airline operators’ profits skyrocketing.
In contrast, Marriott’s globally diversified business has an unattainable foundation. The hotel company operates nearly 8,300 properties under 30 brands in 138 countries and territories.
With a price-to-earnings (P/E) ratio of 20, I think Marriott looks cheap because of its exposure to high-growth markets in developing countries. By 2022, the company has added more than 65,000 rooms worldwide, and a worldwide development pipeline of more than 3,000 properties and more than 496,000 rooms.
Additionally, Marriott has bounced back from a pandemic-era shutdown. Fourth quarter revenue per available room increased 4.6% worldwide in 2022 compared to the fourth quarter of 2019 – and next adjusted for inflation.
The main concern about investing in Marriott is that rising interest rates around the world weigh on real estate prices. This is because, like any asset, hotels are valued in terms of rent generated over time. With higher interest rates, the opportunity cost of buying a hotel – and not a government guarantee – rises. Therefore, hotel prices must decrease to restore equilibrium.
However, with a long-term view, higher interest rates also make borrowing for capital-intensive projects more difficult. This would suggest fewer hotels being built, and less competition for Marriott.
I plan to buy shares in Marriott when I next have some spare cash.
Mark Tovey has no position at Marriott International.
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