Please ensure Javascript is enabled for purposes of website accessibility

3 Top Travel Stocks to Buy Now

By Billy Duberstein – Oct 13, 2020 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Looking to play a recovery in travel and leisure? These three stocks should be at the top of your list.

As everyone knows, the travel and leisure industry is in the dumps right now as a result of the COVID-19 pandemic. Yet better therapeutics are coming to market every day, and with each passing day, we are getting closer to a vaccine. Bill Gates believes there could be vaccine approvals as early as December or January, meaning the pandemic could end by mid- to late 2021.

There is likely a lot of pent-up demand for travel after a year of restricted movement. Given the run-up in "stay-at-home" stocks this year, investors may wish to look at high-quality travel and leisure stocks that are still down on the year.

That's why MGM Resorts International  (MGM -0.90%), Disney (DIS -3.20%), and Expedia (EXPE -0.55%) all look like promising "post-vaccine" bounce-back travel picks today.

Sunglasses and a facemask on a suitcase.

Three stocks to play a travel turnaround. Image source: Getty Images.

MGM Resorts International

Barry Diller's IAC/InterActiveCorp (IAC -1.93%) recently took a 12% stake in MGM Resorts, and it wouldn't be a bad idea to follow this smart investor into the stock as well. Not only should IAC help grow MGM's digital offerings in i-gaming and online sports betting, but MGM's core casino properties appear quite cheap as well.

MGM's casinos consist of 35% of rooms on the Las Vegas strip, along with many regional casinos and two properties in Macau. In 2019, MGM achieved adjusted EBITDAR of over $3.3 billion and free cash flow of about $1.1 billion, versus a market capitalization of just $10.5 billion, and an enterprise value of $25.7 billion. That's just a 7.7 EV/EBITDA multiple and a 10 times cash flow multiple based on last year's earnings.

New CEO Bill Hornbuckle just took the top role as CEO and appears to be doing a good job conserving cash in the new depressed environment. Of the properties that were gradually reopened in the second quarter, almost all generated positive cash flow, even with 30% occupancy during the week and 50% occupancy on the weekends. The company is also implementing a $450 million cost-saving plan this year, which should stick around even when traffic returns.

Not only should the core properties bounce back strongly once the world gets a vaccine, but MGM should also benefit from the expansion of i-gaming and online sports betting across America. MGM's BetMGM app should benefit from MGM's casino presence across the country, as well as its 34 million-plus M-Life rewards members it can reach via digital channels. BetMGM is already live in seven states, on its way to 11 by the end of the year, with market access in 19 total states.

With a cheap stock just in relation to its core casino business, as well as hidden potential upside from BetMGM and IAC's involvement, MGM looks like a promising turnaround pick in the travel sector today.

Two young girls on a roller coaster.

Image source: Getty Images.

Disney

Most investors know the Walt Disney brand and its impeccable record of value creation over time. Yet Disney's stock is still off almost 20% below its all-time highs set back last December.

DIS Chart

DIS data by YCharts

Disney is facing extreme difficulty in three out of its four main divisions, including the media networks division tied to the traditional TV bundle, its parks and experiences division, and its studio entertainment division that gets a significant portion of revenue from theatrical distribution. Disney isn't 100% a "travel stock," of course, but its parks, experiences, and products segment was its highest-revenue division last year.

However, the company is doing a good job of adapting to these times. Disney has cut costs and began a phased reopening of some of its parks this summer. Walt Disney World reopened at lower capacity with a positive contribution margin even low attendance levels and with added safety protocols. Disney also decided to experiment by releasing Mulan as a premium video on demand offering through Disney+, as a theatrical release wasn't pragmatic. The result: Disney was able to eke out $1.1 billion in operating income last quarter, when factoring out a non-cash $5 billion impairment charge, even with all of the headwinds.

And of course, Disney really appears to be succeeding with its fourth division, its direct-to-consumer division, including Disney+, ESPN+, and Hulu. On the recent conference call, new CEO Bob Chapek revealed Disney+ had 60.5 million subscribers as of Aug. 3, and Hulu subs were up 27% year over year to 35.5 million as of the end of last quarter. And Disney+ hasn't even rolled out to many markets yet, including the Nordics, Portugal, and Latin America, which will be forthcoming this fall. Chapek noted, "As our global sub numbers continue to grow, we've also exceeded our internal subscriber projections in every major market we've launched thus far."

Consumers clearly love Disney's brand. Since the company is operating in the black even in this COVID environment, investors don't have too much to fear as they wait for a turnaround across Disney's cable, parks, and studio businesses. Meanwhile, the company looks as if it's going to be a force in streaming over the long term.

A woman looks up travel options on her laptop seen over the shoulder.

Image source: Getty Images.

Expedia

Finally, online travel agency (OTA) Expedia looks like another solid bet to play a travel recovery. Expedia is one of two large OTAs in an oligopolistic industry. Its platform consists of brands Expedia, Orbitz, Hotels.com, Vrbo, Travelocity, a majority stake in hotel booking site Trivago (TRVG -2.52%), as well as other properties.

The company is fortunate to have private vacation rental site Vrbo on its roster, as that brand has been a hit as consumers look for drive-able private vacations that avoid hotels.

In addition to a mere recovery in travel, Expedia is also a self-help story. After years of underperformance, large shareholder Barry Diller (of IAC fame mentioned at MGM) ousted the former CEO and recently installed longtime lieutenant Peter Kern in the lead role. The team is implementing a $500 million cost-cutting program this year, which would be a huge reset in the company's cost structure, considering Expedia made $565 million in net income in all of 2019.

Like many hard-hit travel companies, Expedia had to raise money earlier this year, but it found cash not only in the debt markets, but also via a preferred stock investment from private equity firms Apollo Global Management and Silver Lake Partners, who now also have seats on Expedia's board of directors.

With major cost cuts already taking place under a new CEO, ample liquidity, and some very smart and highly invested investors on Expedia's board, the online travel agent should be a much leaner and meaner company exiting the pandemic. Despite already more than doubling off its March lows, Expedia is still well below its all-time highs, which it should exceed some time in the future, as long as we get a vaccine. 

Billy Duberstein owns shares of Expedia and Walt Disney. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Trivago and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$94.33 (-3.20%) $-3.12
MGM Resorts International Stock Quote
MGM Resorts International
MGM
$29.72 (-0.90%) $0.27
Expedia, Inc. Stock Quote
Expedia, Inc.
EXPE
$93.69 (-0.55%) $0.52
Trivago Stock Quote
Trivago
TRVG
$1.16 (-2.52%) $0.03
IAC/InterActiveCorp. Stock Quote
IAC/InterActiveCorp.
IAC
$55.38 (-1.93%) $-1.09

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.