Travel stocks good bet for investors
With the dollar strong, vacation spending beckons
Gas is cheap, the dollar is strong, and tax refunds are in the mail. As Americans make plans for summer getaways, they might consider whether it’s wise to invest in travel-related stocks, such as airlines.
Those industries certainly may benefit if travel watchers are correct in their expectation that many Americans will use extra cash to splurge on a vacation.
“There is a good chance more people will travel this summer because of a stronger economy and lower gas prices,” says Heather Hunter of AAA. “For those going to Europe, the dollar is about even with the euro now, which means vacation dollars will go much further, and as tax refunds come in, it is an excellent time to book a trip.”
A Bankrate.com survey found only 3% of respondents planned to use their tax refund for a vacation or shopping spree. Still, Price line.com promotes springtime vacation packages that cost less than the average giveback of roughly $2,900 from Uncle Sam.
For instance, as of Thursday, a trip to Orlando from New York from May 22 through 25, including round-trip airfare and a stay at a 3-star hotel, could be purchased for $453 a person.
“We found it interesting that the average tax return this year could cover flight and hotel costs for a family of four to Orlando ... and still leave some funds for savings,” says Brian Ek, Priceline .com’s travel editor.
Sam Subramanian, editor and publisher of the Alpha Profit Sector Investors’ Newsletter, said in an email that the airline industry could be a good bet for investors. “Air carriers are enjoying a renaissance as epitomized recently by the addition of American Airlines to the S&P 500. Air travel demand remains strong.”
He was less bullish on hotels, cruise lines and theme parks. “The Fed is looking to raise interest rates sometime in 2015,” he said. “Higher interest rates and higher oil prices can pose headwinds for these groups.”
Still, the financial performance of global cruise lines such as Norwegian and Royal Caribbean has been on the upswing. In a report to investors, Nomura equity analyst Harry Curtis wrote, “These business models are improving,” based on such positive indicators as more free cash flow “and over 30% annual (earnings per share) growth through 2017.”
“It is an excellent time to book a trip.”
Heather Hunter, AAA