ETFs
5 Travel Stocks and ETFs to Watch as Summer Travel Heats Up
From airlines and hotel chains to online booking platforms and cruise lines, the travel sector offers investment opportunities as attractive as those in other sectors, such as healthcare or technology.
Each segment has its own characteristics, opportunities and challenges. During economic downturns, some segments, such as car rentals and outdoor activities, may perform relatively well while others, such as airlines, may decline. as they did during the Covid-19 pandemic.
5 Travel Stocks and ETFs to Watch as Summer Travel Heats Up
Summer is typically a peak time for travel, so there is often increased demand for travel services, which can drive up stock prices. Travel stocks tend to be cyclical, so their performance fluctuates depending on the season and economic conditions. The job market is strong, inflation is significantly down from its 2022 highs and consumers do not appear to be reducing their travel spending.
But travel is a sensitive industry. This is often one of the first areas where consumers cut back when money is tight. If people become nervous about the economy or unemployment rises, travel companies are often the first to suffer.
That being said, if you’re looking for a way to get in on the summer travel trend, here are five stocks and ETFs to consider as Memorial Day approaches and travel heats up.
Reserve fund (BKNG)
Booking Holdings is the leading online travel agency platform. He is known for some of the world’s largest travel websites, including his namesake Booking.com as well as Priceline, Kayak and OpenTable. Their sites provide a one-stop shop for travelers looking to book accommodation, including hotel, flights, and car rentals.
Booking Holdings is considered a Strong Buy by dozens of analysts as of May 15. At over $3,770 per share, it’s one of the the most expensive stocks on the marketbut analysts only expect an increase over the next 12 months, with an average price target of nearly $4,000.
So what makes Booking’s prospects so attractive? The company’s recent performance has been fantastic, according to its first-quarter earnings report released in May. BKNG reported gross customer travel bookings totaling $43.5 billion, up 10 percent from the year-ago quarter. Revenue totaled $4.4 billion, up 17% from the first quarter of 2023, while net income was $776 million, an increase of 192%.
Booking Holdings also recently announced a cash dividend of $8.75 per share, payable on June 28, another positive signal for shareholders.
During his first-quarter earnings call with investors, Booking CEO Glenn Fogel noted that the company continues to see resilience in global leisure travel demand, including healthy growth in planned trips for peak summer season, adding that “what is planned today” represents a modest percentage of total expected summer bookings.
The story continues
Booking Holdings is up more than 43% year-over-year as of May 15. Due to the high price of a single share of BKNG, using a broker who offers fractional share investments is probably the easiest way for investors to buy.
Uber
Uber, headquartered in San Francisco, is a transportation-focused technology company, offering ride-sharing, food delivery, and even freight transportation services. They operate in more than 70 countries and facilitate millions of trips for travelers around the world every day.
After years of hemorrhaging cash as a high-growth tech stock, Uber is now profitable. In February, the company reported its first annual profit since going public in 2019, sending its stock to a record high.
But Uber struggled after releasing its first-quarter report in May. Even though gross bookings rose 20 percent to $37.7 billion, they still narrowly missed analysts’ forecasts. This caused shares of Uber to fall while shares of its main rival, Lyft, rose after beating earnings estimates.
Still, many analysts favor Uber’s long-term prospects over Lyft. In early May, Uber struck a deal with grocery delivery leader Instacart in an effort to gain an edge over DoorDash. The partnership will allow customers to use the Instacart app to order from restaurants through Uber Eats, a move that could significantly boost Uber’s delivery business.
Additionally, Uber’s outlook for second-quarter rideshare bookings is expected to grow between 18 and 23 percent, according to company estimates.
Uber shares are up more than 70% on May 15 compared to the same period in 2023.
Expedia
A direct competitor to Booking Holdings, Expedia is an online travel giant in its own right. Besides its namesake Expedia.com, the company also owns Travelocity and recently acquired Vrbo, a vacation rental company. Similar to Booking, Expedia offers a variety of travel products, including flights, hotels, and car rentals.
Total gross bookings were $30.2 billion in the first quarter of 2024, up a modest 3% from the same period in 2023. Meanwhile, hotel bookings were up 12% from the same period in 2023. to 2023. Expedia also reported revenue of $2.9 billion, up 8% from 2023. in the first quarter of 2023.
However, the company offered disappointing guidance for the second quarter. Although Expedia has the potential to outperform, several analysts are lukewarm on the idea of slowing growth heading into summer, traditionally one of the busiest times of the year for agencies of travel. These poor forecasts caused Expedia’s stock price to plummet after its May 2 earnings release.
Expedia was up about 27 percent year-over-year as of May 15.
2 Travel ETFs to Consider: JETS and PEJ
If you think the travel and tourism industry is poised for growth, focus on travel exchange traded funds (ETFs) offer a way to gain exposure without selecting individual stocks.
ETFs spread your investment across many companies, reducing your overall risk compared to owning a few individual stocks. If one company stumbles, the impact on your overall portfolio is lessened.
However, because travel ETFs are tied to the overall health of a single sector, they offer less diversification than a broadly diversified ETF with holdings spread across the entire stock market.
Here are two travel-themed ETFs to consider.
American Global Jets ETF (JETS)
The airline industry is cyclical and highly dependent on economic conditions and fuel prices. Therefore, gaining exposure to some of the biggest names via an ETF is one way to invest in this segment of the industry.
JETS provides exposure to airline operators and manufacturers around the world. Its top holdings include Delta, United, American, Southwest and Alaska Air, as of May 2024. It also tops Bankrate’s holdings list. best airline and transportation ETFs.
He wears a spending rate by 0.6 percent. It is higher than low cost index funds but not unusually expensive for a sector ETF.
Invesco Leisure and Entertainment ETF (PEJ)
This ETF focuses on 30 US companies in the leisure and entertainment sector. Instead of focusing solely on airlines, PEJ offers a more diverse mix of companies spread across various sub-segments. Its main holdings include Royal Caribbean Cruises, DoorDash, Live Nation Entertainment, Hilton and Marriott, since March 2024.
The fund uses a selection process based on factors such as price momentum, earnings momentum, management actions and value. It comes with an expense ratio of 0.58 percent.
Conclusion
Travel sector stocks offer high return potential, but remain more vulnerable to external factors than other sectors. On the positive side, the resurgence of travel demand post-pandemic and the growing popularity of niche markets provide growth opportunities for many businesses. However, economic downturns, geopolitical instability and fuel costs can still impact travel spending.
If you are not comfortable with risk, a broadly diversified index fundlike the one that tracks the S&P 500, allows you to participate in the growth of the overall economy, without having to bet on summer travel trends.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Furthermore, investors are advised that past performance of investment products is not a guarantee of future price appreciation.