With increasing hours of daylight and — theoretically — better weather, Brits’ thoughts inevitably turn to holidays. And there are a host of travel stocks listed in the UK that could benefit from holidaymakers’ dreams and desires!
So we asked two Fools to name their favourite shares in the sector right now, and why. As ever, note 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 FTSEâs biggest winners so far this year has been easyJet (LSE:EZJ). The shares have risen by an impressive 50% and are up 75% from their October lows. And while the consensus is to buy low and sell high, easyJet shares are still nowhere near their pre-pandemic highs. In fact, theyâre still down by 60% â which is why I still see its current share price as a buying opportunity.
The hot momentum that fuelled the steep climb for travel stocks earlier this year may have dissipated. However, investors shouldnât take this as a sign of waning demand. In easyJetâs latest trading update, CEO Johan Lundgren cited strong bookings momentum going into the summer, and expects the budget airlineâs capacity to continue growing throughout 2023, with a return to pre-Covid levels by September.
Data source: OAG
More excitingly, the companyâs up and coming Holidays segment (where customers can book packages), is proving to be a huge driver for revenue growth and should help expand the firmâs margins. And with fuel costs also expected to decline this year, this should help easyJetâs earnings, which are forecast to come in at 27.9p per share, an increase of almost 250%. That said, thereâs always the risk that fuel prices climb back up or a deeper-than-anticipated recession hits, which could dampen forward bookings, and push the stock back down.
And despite its shares having risen drastically this year, the stockâs valuation multiples remain cheap and comfortably below the industryâs average.
Metrics
easyJet
Industry Average
P/B value
1.5
1.8
P/S ratio
0.6
0.8
FP/S ratio
0.5
0.7
FP/E ratio
20.1
29.1
Data source: Google Finance
Whatâs more, the group has robust financials, which is a tough find for travel stocks, especially after the pandemic. Its balance sheet boasts strong liquidity (£3.64bn) that sufficiently covers debt (£3.20bn) and has positive free cash flow (£246m). Thus, I see easyJet shares as the best FTSE travel stock 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 think buying Marriott International (NASDAQ: MAR) is like booking the presidential suite.
The hotel industry provides more consistent revenue streams than the airline industry. Fuel price spikes, cut-throat competition and even volcanic eruptions can leave airline operatorsâ profits up in the air.
By contrast, Marriottâs globally diversified business has unflappable foundations. The hotelier operates nearly 8,300 properties under 30 brands spanning 138 countries and territories.
With a price-to-earnings (P/E) ratio of 20, I think Marriott looks cheap considering it is exposed to high-growth markets in the developing world. In 2022, the company added more than 65,000 rooms globally, and its worldwide development pipeline totalled over 3,000 properties and more than 496,000 rooms.
Moreover, Marriott has bounced back from pandemic-era shutdowns. Fourth quarter revenue per available room increased 4.6% worldwide in 2022 compared with the 2019 fourth quarter â and thatâs after adjusting for inflation.
My main concern about investing in Marriott is that interest-rate rises around the world are weighing on real estate prices. Thatâs because, like any asset, hotels are valued in terms of the rents they generate over time. With higher interest rates, the opportunity cost of buying a hotel â and not for example a government bond â increases. Therefore, the hotelâs price must fall to restore equilibrium.
However, taking a longer-term view, higher interest rates also make obtaining loans for capital-intensive projects less possible. That would in turn 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 does not have a position in Marriott International.
The post Better travel stock buy: easyJet vs Marriott International appeared first on The Motley Fool UK.
Our analysis has uncovered an incredible value play!
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
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See the full investment case
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The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.