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Time to Book Some Travel Stocks

With people staying home for safety, the travel sector has been devastated by the COVID-19 pandemic. Most travel stocks have been devastated, too.

The market seems to be saying that travel is not coming back anytime soon. But that is too pessimistic, notes James K. Glassman, Kiplinger's Personal Finance.

By the end of 2021, vaccine use, at least in the United States, should be widespread, and the danger of infection low. Some practices developed during the pandemic will be slow to change, if they ever do. People will continue to shop more on the Internet, and many of us will never return to an office for work.

But we will be eager to return to some pre-pandemic activities, including travel. In fact, traveling may benefit from pent-up demand. Glassman says it might be time to book some travel-related stocks.

Before investing in a travel stock these days, you should look at the balance sheet and determine whether the company has enough cash to ride out the storm.

Consider Alaska Air Group (ALK), the nation’s fifth-largest airline, with a strong presence on the West Coast. The airline sector is too capital-intensive, and air service is a commodity, with brands competing almost exclusively on price. But Alaska Air is a standout.

It has excellent, innovative management and a cost structure that’s lower than established airlines. Plus, the stock is trading at about half of its 2017 high.

Hotel stocks come in two varieties: real estate investment trusts, which own the real estate, and operating companies with famous brand names, which manage the properties.

Stronger REITs appear attractive – and with good reason. They have enough cash to grow by snatching up properties at low prices from smaller and weaker owners. The biggest lodging REIT is Host Hotels & Resorts (HST), which owns nearly 80 hotels and partners with brands such as Ritz-Carlton and Westin.

Revenues in the third quarter of 2020 were just $198 million, compared with $1.3 billion a year earlier, with overall occupancy of a mere 17%. But, with $2.4 billion in cash and no debt maturing before 2023, Host is in good shape.

Hotel operating companies offer no screaming bargains. If you have always wanted to own Marriott International (MAR), the largest in the sector with 5,700 hotels, my advice is to wait for another big dip.

Some of the best bets in travel are companies that don’t own boats, planes or hotels, but instead make money online through commissions and ad sales.

TripAdvisor (TRIP), billing itself as the “world’s largest travel site,” owns dozens of other websites in 28 languages, from SeatGuru.com to HolidayLettings.co.uk. In the third quarter, revenues were down 65% from the same period in 2019, but the balance sheet looks solid.

Booking Holdings (BKNG) has a market value of $87 billion – more than the four largest U.S. airlines combined. It owns not only Booking.com but also OpenTable, Priceline, Kayak and Rentalcars.com, among others. Revenues fell 48% in the quarter ending September 30, compared with the previous year, but Booking still made a profit.

Editor’s Note: James K. Glassman is a contributing columnist at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.

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