Travel stocks revisited – building up a watch list
My long term readers know that I did a lot of research on travel stocks in the past, however with little result other than a only slightly profitable investment into Expedia.
With the current situation, I decided to have a quick look at the travel sector again.
Up until now, the tourism industry has been seen as a secular growth industry, mainly due to 2 mega trends: Emerging market middle class tourists and older, more wealthy first world tourists were driving tourist numbers and subsectors such as cruises or AirBnB rooms. Just last year, “overtourism” became a major trend in social media, I guess this problem will not be a big issue in 2020.
Travel always has been vulnerable
Travel and tourism was and is always vulnerable to external events. Terrorism, regional wars, SARS MERS, 9/11 all led to temporary slumps in tourism, either locally (Turkey, Magreb) or globally (9/11). However, so far tourism always recovered relatively. So will Covid19 be the big exception ? Is this time different ? Maybe, as this is now a global issue and even regional vacation targets such äs Südtirol are effected.
But I guess there is a high probability that after some time normality returns to the tourism sector as taking a vacation seems to be one of the basic needs of middle and upper class citizens throughout the world.
The same goes for business travel. Yes, you can work remotely from home. But anyone in a B2B environment knows how hard it is to close a B2B sale on the phone or video call or even pitch for a series A via video chat. Interestingly, especially the Tech sector has created hundreds of conventions where people meet and talk about tech. Again, these physical meetings seem to be some basic human desire and will most likely bounce back once this virus has been defeated/contained.
One specific aspect of Covid19 compared to other threads is that all kind of mass gatherings will be effected for some time, i.e. concerts, live sports etc. During the peak of the terrorist threat, many people wanted to make a statement and went to these events in spite of fear, but this will be clearly different this time as we can see currently in Northern Italy.
Other sectors that are depending on travel
There are also certain sectors that are pretty directly effected by travel activity. Aerospace is clearly one, including airplane leasing and airports. But also shopping, especially luxury shopping and malls have high percentages of tourists customers, as tourists like to shop. Many luxury items are purchased by tourists, so I would include them as well as the whole hospitality /restaurant sector.
So it might be a little bit early, but if the underyling assumption is that things will normalize, it definitely time to create a watch list of potentially interesting stocks
Creating the first watch list
Before digging into the stocks a few comments and summary and reference to my 20 rules, of which these need to be applied:
Just because a stock went down, it doesn’t mean it’s cheap. Avoid stocks that are in structural decline and companies that depend on refinancing.
If I look at my Travel series, stocks like Trivago, Expedia, Flight Centre and also Tripadvisor have structural issues due to the aggressive move of Google with Google Travel that makes life difficult for them in any case and Covid19 could in theory act as a catalyst. So in order to look at this more efficiently, I came up with the following thesis:
If a travel related stock is significantly down for 1 year and 3 year periods as well, there might be other factors at work. I will concentrate on these stocks that show a decent 1 and 3 year performance instead. Here is a first list of stocks that I selected on the basis that I either have already covered them in the blog or briefly looked at them.
The green ones are these that I find most interesting at a first look. I am open to suggestions and opinions this time.