As the world starts to reopen, some of the sectors of the economy that have been impacted the most by the global health crisis are beginning to see glimmers of hope. Perhaps the sector that has been impacted the most by the pandemic is the travel industry. This sector went from booming to the demand for travel completely evaporating seemingly overnight. As a result, the stock prices of major companies in the travel industry have cratered.
Although there is still substantial uncertainty related to the travel industry and what traveling will be like going forward, there are some interesting investment opportunities to explore if you have the appetite for the risk. Three companies stand out as businesses that could rebound well as the travel industry takes steps towards returning to normalcy. Although there will certainly be some setbacks along the way, these companies have the potential to generate nice returns for patient investors. Let’s take a look at 3 travel stocks that could rebound strongly below.
It’s safe to say that travel companies like Expedia face a very challenging environment in the near-term. People simply aren’t traveling right now and the stock price reflects that as Expedia’s stock price fell off a cliff from its February 2020 highs. Some investors might be scared away by the short-term risk for the travel industry as a whole, but if you look deeper into the company you start to realize that it has a fairly attractive valuation thanks to stable free cash flow generation and a solid balance sheet.
Although the online travel shopping company experienced a 15% year-over-year decline in revenue when they reported their earnings this month, it appears that Expedia’s management team acted quickly to implement cost-savings measures and secure new funding from private equity firms to help weather the storm. If the demand for travel rebounds later this year, Expedia has a lot of room to run and can potentially reward investors with massive gains. Just keep in mind that Q2 and the next few months might be rough for the company, especially if the virus begins to spread with a second wave.
MGM Resorts (NYSE:MGM)
On June 4th, the Las Vegas strip will reopen along with many of the properties of major players in the casino industry. These companies have had their stock prices absolutely obliterated by the health crisis, which means you might find some great value in them if you are a believer in a quick economic recovery. It’s likely that there is pent up demand for gambling, particularly since people have been stuck at home over the last few months. Don’t underestimate just how much people love going to Las Vegas.
We know that all of the major casinos will take special measures based on the advice of health experts to keep their clients safe, but we don’t know how that will impact consumer demand. With a healthy international portfolio of hotels and casinos, there’s a good chance that MGM Resorts stock is trading in the $20’s by the end of this year. However, there are also considerable risks with this business that cannot be ignored. Out of the three stocks in this article, consider MGM the riskiest since it can be affected by both the demand for travel and the safety protocols which might change the consumer experience for casino-goers.
Southwest Airlines (NYSE:LUV)
It’s fair to assume that the demand for air travel will come back at some point. However, the airline companies are currently losing millions of dollars every day, which is why you should be looking at the cream of the crop if you want to invest in the industry at this time. Take a look at Southwest Airlines, which is a company that has low debt levels and one of the strongest balance sheets out of all of the airlines.
Prior to the global health crisis, Southwest had been delivering strong profits for decades. The stock price reached six-year lows on May 14th which means you can scoop up shares of one of the industry leaders for cheap. With that said, revenue for all of the airlines is going to decrease dramatically this year. The question is by just how much it will fall. Early indications of returning consumer demand for air travel is positive, with Southwest confirming that May bookings topped cancellations. We know that that Southwest is going to have some rough quarters ahead, but there’s also a good chance that things are currently as bad as they can possibly get for air travel. With the liquidity and strong management team to overcome the current situation, Southwest Airlines stock has real potential to bounce back strong.
Risk for Reward
If you are the type of investor that can stomach the significant short-term risk for the possibility of massive long-term gains, these travel stocks might be worth looking at. They each have a chance of coming back strong and rewarding patient investors with sizeable gains, particularly if the economy recovers quickly and health concerns are minimized. It’s hard to find value in the market at this time, but these three stocks are all travel industry leaders that have a lot of potential going forward.
Companies Mentioned in This Article
10 Oversold Stocks That Are Ready For a Comeback
A fundamental concept of investing is to buy stocks at a value. One strategy used by investors is to focus on stocks that are oversold. Fundamental analysis can give investors an idea of certain stocks to look at. However, momentum is also important. For that reason, investors look for technical indicators to help them find oversold stocks that might be ready for a comeback.
One of the most popular tools is the Relative Strength Index (RSI). The RSI is a momentum indicator that measures the velocity and magnitude of price movements. The index also compares them with the magnitude of average gains and average losses.
The formula for calculating RSI is as follows:
RSI = 100 - ( 100 / 1 + RS)
Where RS (Relative Strength) is the average gain divided by the average loss.
Investors can use virtually any timeframe they wish. One of the most common is a 14-day RSI. Decreasing the number of days makes the RSI more sensitive to price changes. Conversely increasing the number of days makes the indicator less sensitive to price changes.
Investors may have different overbought or oversold indicators, but standard benchmarks are a stock may be overbought if its RSI exceeds 70 and may be oversold if its RSI exceeds 30.
The stocks in this presentation are chosen for a variety of fundamental and technical indicators. And all the stocks have been affected in one form or another by the Covid-19 pandemic.
View the "10 Oversold Stocks That Are Ready For a Comeback".