From airlines and hotel chains to online booking platforms and cruise lines, the travel industry offers investment opportunities as compelling as those in other industries, such as health care or technology.
Each segment boasts its own characteristics, opportunities and challenges. During downturns, some segments, like car rentals and outdoor activities, can perform relatively well while others, like airlines, can nosedive, as they did during the Covid-19 pandemic.
5 travel stocks and ETFs to watch as summer travel heats up
Summer is usually a peak travel time, so there’s often increased demand for travel services, which can boost stock prices. Travel stocks tend to be cyclical, so their performance fluctuates based on the season and economic conditions. The labor market is strong, inflation is down markedly from its 2022 highs and consumers don’t appear to be pulling back on travel spending.
But travel is a sensitive industry. It’s often one of the first areas consumers cut from their budgets when money gets tight. If people get nervous about the economy, or unemployment goes up, travel companies are often the first to feel the pain.
With that being said, if you’re looking for a way to play the summer travel trend, here are five stocks and ETFs to consider as Memorial Day approaches and travel heats up.
Booking Holdings (BKNG)
Booking Holdings is the leader of online travel agency platforms. It’s known for some of the biggest travel websites in the world, including its namesake Booking.com as well as Priceline, Kayak and OpenTable. Their sites offer a one-stop shop for travelers looking to book accommodations, including hotel, flights and car rentals.
Booking Holdings is rated a strong buy from dozens of analysts as of May 15. At more than $3,770 per share, it’s one of the most expensive stocks on the market, but analysts only expect it to increase over the next 12 months, with an average price target of nearly $4,000.
So what makes Booking’s outlook so attractive? The company’s recent performance has been fantastic, according to its first quarter earnings report released in May. BKNG reported gross travel bookings from customers totaling $43.5 billion, up 10 percent from the prior-year quarter. Revenue totaled $4.4 billion, up 17 percent from the first quarter of 2023, while net income was $776 million, an increase of 192 percent.
Booking Holdings also recently announced a cash dividend of $8.75 per share, payable on June 28, another positive signal for shareholders.
During its Q1 earnings call with investors, Booking CEO Glenn Fogel noted that the company continues to see resiliency in global leisure travel demand, including healthy growth for travel scheduled to take place during the peak summer season, adding that “what is on the books today represents a modest percentage of the expected total summer bookings.”
Booking Holdings is up over 43 percent from the prior year as of May 15. Due to the high price tag of a single share of BKNG, using a broker that offers fractional share investing is likely the easiest way for investors to buy in.
Uber
Uber, headquartered in San Francisco, is a technology company with a focus on transportation, offering ridesharing services, food delivery and even freight transport. They operate in over 70 countries and facilitate millions of trips daily for travelers around the globe.
After years of hemorrhaging cash as a high-growth tech stock, Uber is now profitable. In February, the company posted its first full-year profit since going public in 2019, causing its stock to hit an all-time high.
But Uber had a bumpy ride following its first quarter report in May. While gross bookings grew 20 percent to $37.7 billion, it still narrowly missed analyst forecasts. It caused shares of Uber to fall while shares of its main rival, Lyft, rose after it beat earnings estimates.
Still, many analysts favor Uber’s long-term outlook over Lyft. In early May, Uber struck a deal with Instacart, the grocery delivery leader, In a bid to gain an edge over DoorDash. The partnership will let customers use the Instacart app to order from restaurants through Uber Eats, a move that could significantly boost Uber’s delivery business.
Plus, Uber’s outlook for second-quarter rideshare bookings is expected to grow between 18 to 23 percent, according to company estimates.
Uber shares were up over 70 percent May 15 compared to the same time in 2023.
Expedia
A direct competitor of Booking Holdings, Expedia is an online travel behemoth in its own right. Along with its namesake Expedia.com, the company also owns Travelocity, and recently acquired Vrbo, a vacation rentals company. Similar to Booking, Expedia offers a variety of travel products including flights, hotels and car rentals.
Total gross bookings were $30.2 billion during the first quarter of 2024, up a modest 3 percent compared to the same time in 2023. Meanwhile, hotel bookings were up 12 percent compared to 2023. Expedia also reported revenue of $2.9 billion, up 8 percent compared to the first quarter of 2023.
However, the company offered disappointing guidance for the second quarter. While Expedia has the potential to outperform, several analysts are lukewarm at the idea of slowing growth heading into summer, traditionally one of the busiest times of year for travel companies. The lackluster forecast caused Expedia stock price to slip after its earnings report May 2.
Expedia was up about 27 percent from the prior 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, travel-focused exchange-traded funds (ETFs) offer a way to gain exposure without picking individual stocks.
ETFs spread your investment across numerous companies, reducing your overall risk compared to holding just a couple individual stocks. If one company stumbles, the impact on your overall portfolio is lessened.
However, since travel ETFs are tied to the overall health of a single industry, it offers less diversification than a broadly-diversified ETF with holdings spread across the entire stock market.
Here are two travel-themed ETFs to consider.
U.S. Global Jets ETF (JETS)
The airline industry is cyclical and depends heavily on economic conditions and fuel prices, so gaining exposure to some of the biggest names through an ETF is one way to invest in this segment of the industry.
JETS provides exposure to both 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 list of the best airline and transportation ETFs.
It carries an expense ratio of 0.6 percent. That’s higher than low-cost index funds but not unusually expensive for a sector-focused ETF.
Invesco Leisure and Entertainment ETF (PEJ)
This ETF focuses on 30 U.S. companies in the leisure and entertainment sector. Instead of focusing solely on airlines, PEJ offers a more diversified mix of companies across various sub-segments. Its top holdings include Royal Caribbean Cruises, DoorDash, Live Nation Entertainment, Hilton and Marriott, as of March 2024.
The fund uses a selection process based on factors like price momentum, earnings momentum, management actions and value. It comes with an expense ratio of 0.58 percent.
Bottom line
Travel stocks offer the potential for high returns but remain more vulnerable to outside factors than other sectors. On the positive side, a resurgence in travel demand post-pandemic and the growing popularity of niche markets presents growth opportunities for many companies. However, economic downturns, geopolitical instability and fuel costs can always impact travel spending.
If you’re not comfortable with the risk, a broadly diversified index fund, such as one that tracks the S&P 500, gives you a stake in the growth of the entire 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. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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