Planning your next getaway is probably not high on your priority list these days. The pandemic is making vacations a challenge, and the global economic slump isn't making it easy to pay for a potential escape. The storm clouds are everywhere, but it doesn't mean that there aren't some travel stocks worth buying these days.
Royal Caribbean (NYSE:RCL), Walt Disney (NYSE:DIS), and Southwest (NYSE:LUV) are three well-known travel stocks that you may want to consider adding to your portfolio. Cruise lines, theme parks, and airlines are facing stiff headwinds, but let's take a closer look at why these three players are some of the top stocks to buy this month.
Cruise lines have been losing a lot of money since the industry came to a grinding halt in March, and the three major operators won't be taking on passengers again until next year. All three publicly traded cruise line stocks have surrendered more than half of their value in 2020 -- and understandably so -- but there are some good reasons why Royal Caribbean is the name to consider now as an investment.
Royal Caribbean has historically delivered the highest margins in the industry, and that's going to help it turn the corner of profitability sooner than its rivals when cruises hit the open waters again. Royal Caribbean has also checked in with the lowest cash refund request rate on canceled sailings, as a larger percentage of its displaced passengers have opted to apply the proceeds to future cruises than its competition.
These are scary times, but Royal Caribbean has raised enough liquidity to stay afloat well into next year if cruises keep getting suspended. It will outlast the competition in this dry stretch and should sail faster than its peers when cruising is back on the travel menu.
The world's largest theme-park operator reports financial results in a few days, and it's going to be ugly. California's Disneyland remains closed. The turnstiles have been clicking at Disney World in Florida since July, but the resort isn't profitable under current conditions. Layoffs keep happening, and international travel restrictions are keeping its most lucrative visitors away.
It's still a good time to buy into Disney. This isn't just a theme-park company, as the media giant actually posted a profit as strength at its steady media-networks segment helped offset the sting from its theme parks in its previous quarterly report. Disney+ has been a runaway smash in its first year of business, attracting more than 60 million paying subscribers.
This lull will also make Disney better when it resumes operations at the other end of this pandemic. It's been able to improve everything from security screenings to mobile ordering at Disney World and has a pipeline of major new ride experiences on both coasts that will make it easy to woo visitors again when it's safer to do so without capping attendance levels.
You can't blame investors for being skittish when it comes to transportation stocks, and airline stocks have historically been bad bets. Even Warren Buffett dumped his airline stocks this year after being burned by the industry earlier in his storied investing career.
You still have to like Southwest, though. It's not going to wow you with growth. Even before the pandemic, it was merely plodding along with low-single-digit growth, and its gross margin was contracting in the four previous years.
However, it does have the strongest balance sheet in the industry, and it's that rare airline that customers generally rave about. With analysts betting on a return to growth and profitability next year, Southwest will be a leader out of the air-carrier slump. It will also naturally benefit from any of its weaker rivals that will buckle under pressure.
Royal Caribbean, Disney, and Southwest are the best at what they do. If you're buying into an out-of-favor industry, you may as well stick to the discounted leaders.