Summer is upon us, which means most investors are turning their attention away from FOMC minutes and earnings reports, and toward vacations and destinations. But some on Wall Street see an opportunity ahead to capitalize on seasonal trends—particularly travel.
Summer travel depends on the strength of consumers. After all, if would-be travelers are too budget-constricted, they won’t splurge on journeying to exotic destinations. And while inflation is hitting consumers square in the wallet when it comes to purchases like groceries or clothing, they’re doing better than you’d think.
A recent Goldman Sachs report penned by Chief Economist Jan Hatzius noted that, despite indications in earnings reports from retailers that consumers are struggling, he believes consumer strength will surprise to the upside thanks to a strong labor market that “will likely continue to drive healthy real income gains.”
And Michelle Weaver, Morgan Stanley’s US Thematic Strategist, noted in a recent podcast that “60% of US consumers are planning to travel this summer,” according to a survey the firm ran. That number rises to 75% for high-income consumers, a key group for travel stocks, while 49% of all consumers surveyed say they plan to spend more on summer travel this year than in 2023.
So how can investors profit from a summer travel surge? The obvious industries to watch here are airlines, cruise lines, and hotels.
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Airlines are a notoriously slim-margin business as companies compete to fill seats, and troubles at Boeing have only added more complications this year. But Wall Street is still broadly bullish on stocks like Delta Airlines (DAL), which has an average price target over 15% above today’s trading price, and American Airlines (AAL), which has an average target 35% higher than shares trade for today.
Among cruise lines, Goldman Sachs rates Royal Caribbean Cruises (RCL) and Carnival Corp. (CCL) as buys, and told investors to hold on Norwegian Cruise Line Holdings (NCLH) back in March. But that was before Norwegian knocked it out of the park last quarter while previewing both strong demand and a record number of bookings in the season ahead.
Hotel investors can broadly choose between putting their money in hospitality companies, or real estate investment trusts (REITs) focused on hotel properties. Among hotel operators, Bank of America recently reissued its buy rating on Intercontinental Hotels Group (IHG), citing its cost-effective franchise model and strong dividends. As for REITs, Deutsche Bank endorses Park Hotels & Resorts (PK) due to its undervalued price alongside strong revenue growth.—MR