How To Profit From “Pent-Up Demand” For Travel This Year
From the beginning of the Covid-19 outbreak, I’ve argued vehemently against the economic doomsayers.
You know who I’m talking about… the ones who insisted it would be years before consumers would be comfortable venturing out of their homes again.
Sure, some people remain leery about crowded venues. But with restrictions lifting, it’s clear that millions of people can’t wait to crawl out of their homes and into the sunshine. Of course, we must all make our own decisions. But with effective vaccines being deployed at a rapid pace, that decision is getting much easier.
And as an investor, my money says the long hibernation is over.
That’s why I continue to own Entertainment Properties Trust (NYSE: EPR), which owns movie theaters, waterparks, ski resorts, shopping centers, and other leisure properties. It’s been a brutal stretch, but the market clearly sees light at the end of the tunnel – the stock has bounced 108% since the beginning of last March.
It’s not an outlier.
Dozens of the most severely-punished stocks during the selloff have suddenly emerged as the market’s biggest winners. Remember the mass exodus out of travel and leisure last year? Well, the rush back in has been just about as strong.
A Rebound For The Ages
Check out the Invesco Leisure & Entertainment ETF (NYSE: PEJ), which holds stocks such as TripAdvisor and Airbnb. You didn’t want to be within six feet of this fund when the pandemic erupted. But with state lockdowns ending, it has gone straight uphill in 2021. At last count, it’s gone up in 17 of the past 19 weeks.
As a steadfast consumer spending bull, I felt the freefall in this sector went too far too fast. In fact, my first recommendation after the market bottomed last spring was Delta Airlines (NYSE: DAL). I bought on March 11, the same day the Dow bled 2,000 points.
That call may have been a bit premature (I was forced to exit when the company suspended dividends to preserve cash). At the time, governments were still banning most non-essential flights. But I predicted a sustained recovery in 12 to 18 months. And indeed, we’ve seen it. Scheduled flight capacity will only be down about 35% compared to normal levels this quarter — versus 90% a year ago.
With passengers returning, DAL shares have rallied nearly 150% over the past year.
You may also recall that I came to the defense of the cinema industry and booked a nice profit on Cinemark (NYSE: CNK). I remain optimistic both short and long-term. With theaters in New York and Los Angeles finally reopening, weekly box office revenues hit a post-pandemic high in early March. And thanks to postponements, the 2021 film release schedule is stacked.
Then there is another former recommendation, Carnival Cruise Lines (NYSE: CCL), which I continue to hold in my personal account. The stock has climbed from the mid-teens to near $30. You can see why forward-looking investors have returned in droves. Advance bookings for the first half of 2022 have eclipsed pre-pandemic levels from 2019 – with very little advertising.
Norwegian Cruise Line (NYSE: NCLH) just started booking trips for its Oceania line and was inundated with the most reservations in its 18-year history. An around-the-world 180-day cruise excursion sold out in a single day!
Company execs pointed to “pent-up” demand. Remember that phrase. I guarantee you’ll be hearing it again.
“We expect pent-up demand to be realized more fully”
— Peter Ingram, CEO Hawaiian Airlines.
“There is a lot of pent-up demand for travel.”
— Robin Hayes, CEO JetBlue.
“95% of people say they miss travel. There’s a huge amount of pent-up demand.”
— Chris Nassetta, CEO Hilton.
“Once consumers feel safe, you will have this unbelievable pent-up demand for people to get out and travel.”
— Stephen Squeri, CEO American Express.
I should note that the last quote from Squeri was made last July, long before a vaccine was even on the horizon. He has since doubled down on the sentiment, backed by reams of spending patterns and rewards card usage data on millions of cardholders.
American Express notes that travel and entertainment category spending among its members has now exceeded pre-Covid levels for the second straight quarter.
Elsewhere, ticket purveyor Live Nation (NYSE: LYV) just shared some illuminating stats. Among others, U.S. consumers have stockpiled $2.4 trillion in savings from staying at home over the past year – and they are eager to spend. Citing “substantial pent-up demand”, Live Nation has found that 95% of music fans will make up for lost time and attend concerts and shows once restrictions are lifted.
My Plan To Profit
So where am I going with all this? Well, it’s pretty simple. Whether it’s a weekend jaunt to Boston to catch a Metallica concert or a cross-country flight to Orlando for an overdue Disney vacation, you can’t travel without accommodations. While half-empty properties are the norm right now, available rooms will be tougher to come by in the weeks and months ahead.
Hilton Worldwide (NYSE: HLT) is one of the companies preparing to meet that demand. The company has recently welcomed 414 new hotels to its global portfolio of 6,000+ properties – with 397,000 rooms still in the development pipeline. About 90% of the firm’s profits come from recurring management and franchise fees, a lighter business model that leads to robust cash flows and returns on capital.
And the market certainly sees better days ahead. After bottoming below $70 a year ago, HLT stock has just touched a new peak near $130.
There’s just one problem if you’re an income investor. Hilton suspended dividends last March and hasn’t yet reinstated them. Likewise, rival Marriott Int’l (NYSE: MAR) discontinued dividends last March to fortify its balance sheet during the crisis and hasn’t yet brought them back. Ditto for Holiday Inn brand parent InterContinetal Hotels (NYSE: IHG).
Hyatt Hotels (NYSE: H), Choice Hotels (NYSE: CHH), Apple Hospitality (Nasdaq: APLE), Park Hotels & Resorts (NYSE: PK). Same story. You’d be hard-pressed to find dividends anywhere in this group. Stockholders haven’t seen a distribution in about a year. And out of caution, some of these dividends might not return for another 6 to 12 months.
Action To Take
Now, if you’re content to wait – maybe you go ahead and take a position in one of these names. I certainly can’t fault you for that. But as I always tell my High-Yield Investing premium readers, the best income producers aren’t always in plain sight.
That’s why when I was digging into the hospitality sector looking for a suitable high-yield candidate for our portfolio, I kept on digging. And that’s when I found a true gem…
I’ll save the details for later… But for now, I’ll just say that we went with the preferred shares of a well-run luxury resort owner that just gave the green light to resume dividends. If you know about preferred shares, then you know that puts us ahead in line of common stock owners. And better yet, they yield 6.5% — far and away more than your average common stock.
I bet 9 out of 10 investors don’t even know this pick even exists. So if you’re hoping to find high yields in this market, I’m here to help…
If you’d like to get the name of this pick – as well as the other names in our premium portfolio – I invite you to read this special report.