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Why Hotel Stocks Are Surging Today

By Rich Smith - Apr 29, 2020 at 2:15PM

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Will Gilead's new drug reopen America for business -- and hotel stays?

What happened

By now, you've probably heard the good news: On Tuesday, Gilead Sciences (GILD 0.43%) announced that a clinical trial of its COVID-19 treatment drug remdesivir conducted by the National Institute of Allergy and Infectious Diseases (NIAID) has met its primary endpoint.

Separately, data from a phase 3 SIMPLE trial of the drug, conducted by Gilead itself, suggests that a five-day course of treatment with the drug may be just as effective as a 10-day course of treatment. This implies that if the drug works, then a given amount of remdesivir could cure twice as many patients as previously predicted.  

Although remdesivir has not yet been demonstrated to be safe or effective for the treatment of COVID-19, Gilead said, the government seems pleased. So, too, are investors in hotel stocks, who are betting that this drug advances the day when the coronavirus will be brought under control, and Americans will resume traveling, buying plane tickets, and making hotel reservations.  

As of 1 p.m. EDT on Wednesday:

  • Wyndham Hotels & Resorts (WH -1.20%) shares are up 10.8%.
  • Marriott International (MAR -0.69%) is rising 11.3%.
  • Wyndham Destinations (NYSE: WYND) stock jumped 14.9%.
  • And Park Hotels & Resorts (PK -2.35%) is up 20.2%.

 

Four arrows pointing up

Image source: Getty Images.

So what

A logical reaction to good news? Perhaps, although I'm a bit taken aback at the level of investors' enthusiasm. Across the stock market, the S&P 500 is up only about 2.7% today, yet hotel stocks in particular are up as much as six times that.

Does this make sense? As The Motley Fool's own Cory Renauer pointed out today, Gilead's good news is far from unambiguously good. In the NIAID study, which was blind and included a placebo group to better gauge remdesivir's effectiveness, there's a lack of detail on the actual results.

In Gilead's own SIMPLE trial, one interpretation of the results is that five days of treatment are just as effective as 10 days. But another interpretation is that 10 days of treatment offer no improvement over five days, and there's no proof that either course of treatment was better than no treatment at all, because no placebo group was used.

Now what

While Gilead's news might be optimistic for hotel stocks, it also might not be. And even if remdesivir does turn out to be the silver bullet that kills coronavirus, it could still take some time for Americans to resume traveling and booking hotel rooms. Whether due to fears of contracting the virus, or a simple lack of money after months stuck at home and out of work, it's going to take Americans longer to resume vacationing normally than the quarantine itself lasts.

In the meantime, hotels have little to do other than buckle down, try to contain costs, and load up on loans to try to survive through the end of the recession, until their customers come back. Maybe some investors think that mere hope for survival is a reason to buy hotel stocks today. I do not.

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Stocks Mentioned

Marriott International, Inc. Stock Quote
Marriott International, Inc.
MAR
$137.73 (-0.69%) $0.96
Park Hotels & Resorts Inc. Stock Quote
Park Hotels & Resorts Inc.
PK
$13.73 (-2.35%) $0.33
Wyndham Hotels & Resorts, Inc. Stock Quote
Wyndham Hotels & Resorts, Inc.
WH
$66.67 (-1.20%) $0.81
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.48 (0.43%) $0.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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