Gearing up for its summer season, Orbitz
Give us your energetic, your affluent, your free-spending...
After a nasty contraction in the recession-battered year of 2009, domestic travel is on the rise. Total expenditures on trips in this country motored ahead by 7.7% and 7.5% year on year, respectively, in 2010 and 2011.
Since much of the travel-booking these days is done online, it's the big Internet travel agencies that have benefited from this recovery. Expedia's
Speaking of margins, another company netting big chunks of profit is travel deal consolidator priceline.com
Growth is still in the air for these operators, with industry forecasts anticipating a 3.2% rise in domestic travel spending. This might be a lowball estimate, given the still-weak U.S. dollar and the industry's just-launched $12 million "Brand USA" ad blitz. This TV, print, and Internet campaign extolling the virtues of visiting America is targeted to nations like Canada and Japan, which have traditionally been the biggest foreign spenders on travel in this country.
Besides, even a modest 3.2% rise would add up to more than $840 billion in overall spending. That's a lot of potential revenue for the online travel portals.
No bummer in the summer
On a cold and rational basis, companies in sectors on the upswing should trade steadily higher no matter the season. But as we're all too painfully aware, the stock market can be far from rational -- and its players anything but cold in their decision-making. So it's perhaps understandable that the above travel stocks have generally outperformed the Dow in the late-summer period.
Not coincidentally, this is when they usually post their most impressive results. For example, in 2011, Expedia saw its highest revenue and fattest net profit for the year by far in the quarter ended Sept. 29. Habitual loser Orbitz didn't impress anybody, but it also squeezed out its best top and bottom lines for that year during the same quarter.
Priceline's July-through-September quarter saw it bring in revenue of almost $1.5 billion -- more than $300 million better than its next-best period last year. Net for July-September, meanwhile, came in 83% higher than the runner-up quarter. Summer is, and has always been, about vacation for a lot of people. No wonder it's the time when travel operators make real money.
This doesn't escape investor notice, which is probably why these stocks trade up in anticipation of summer quarter results. Take a look at how Expedia stock did in the four months from last July. It dozed like a beachside tourist in July, then started to push notably ahead of the Dow the following month before falling in line with the index once fall rolled around.
Priceline had a better summer quarter and a more impressive 2011 overall. Regardless, it saw the same kind of Dow-jumping pop as its rival (although this occurred a bit later in the season).
This wasn't a fluke. The pattern was more or less alike in the same stretch of 2010.
Like its brother travel-service companies, recent stock market arrival HomeAway
Play the beach-ball bounce
Like many industries, tourism is continuing to rebound from the dark post-recession period. Not all of the sector's stocks are created equal, but there's money to be made by investing in them -- particularly if it's done when they start to outpace the broader index. Here's to hoping they hew to tradition and rise along with the mercury this summer.
Tourism stocks like Expedia, Priceline, and HomeAway look set to bounce late this summer. Those looking for a potentially more permanent gain need to consider the stocks profiled in our FREE report, "Secure Your Future With 9 Rock-Solid Dividend Stocks." That report is only a click away at this link.
Fool contributor Eric Volkman owns no stocks mentioned in the story above. The Motley Fool owns shares of TripAdvisor and priceline.com. Motley Fool newsletter services have recommended buying shares of HomeAway, priceline.com, and TripAdvisor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.