Hotel stocks, which were among the worst performers in March amid coronavirus stay-at-home orders, have rebounded sharply.
However, analysts differ on whether the rally has further legs. Barclays is among the brokerages that are bullish on the sector and on Monday upgraded Hilton and Marriott to “overweight” as it sees “improving demand trends” in the US market.
Hilton is up a third from the end of March stock sell-off, but the stock is down 32% this year. Marriot has gained almost 45% on the March sell-off, but is still down 40% in 2020.
In March, Pershing Square’s Bill Ackman said that he feared some hotel stocks would fall to zero. However, he subsequently brought shares in Hilton and Starbucks. Ackman made $2.6bn in March by “credit protection on various global investment grade and high-yield credit indices”, protecting his fund from steep stock market falls that were happening at the time. Ackman predicted that “hell is coming” for US firms as a result of the coming health crisis earlier that month.
Gradient investments on hotel stocks
Gradient Investments also sees value in some travel stocks. “When you upgrade hotels stocks, you’re really betting that the economy will return to normal, and that folks will start to travel again, and I would agree on that premise that things are beginning to normalize. I see at our local level in restaurants, retail, even traffic on the freeways,” Michael Binger, president of Gradient Investments told CNBC’s Trading Nation on Monday.
Gradient Investments is buying vacation ownership company Wyndham Destinations that has around 220 resorts and serves Middle America. Binger added: “Most importantly, these are more drive-to resorts. We think that area will come back first.”
However, Binger has a note of caution on hotel stocks. He said: “The caveat being if the economy doesn’t recover, vacations are canceled, consumers hunker down, that’s the risk of owning right here.”
The bearish bet
Not everybody is sold on the hotel stocks story. For instance, Ari Wald, head of technical analysis at Oppenheimer is staying away from the travel sector as he believes an economic and travel “recovery isn’t reflected in the charts just yet.”
He does not see much upside in Marriott. Wald said: “We were on the show 8 June highlighting Marriott as a tactical sell as the stock had rallied into the falling slope of its 200-day average. The stock has come off since then, it’s trying to find support at its 50-day average at $87. But given that bearish trend, put simply, we see more attractive opportunities for funds elsewhere.”
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