Please ensure Javascript is enabled for purposes of website accessibility

The Best Stocks in Hotels

By Selena Maranjian - Jun 8, 2015 at 4:00PM

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

If you're seeking the best stocks in hotels, here are three to consider.


Photo: Kassandra Bay Resort, Flickr.

The lodging industry is expected to grow in the coming years, but not every hotel company will experience equal growth. Thus, investors should seek out the best stocks in hotels.

First, though, a little industry review. The research firm STR has recently projected continued growth for hotels in the next few years, with average daily rates rising by 5.2% to $121 by 2015's end, while revenue per available room, or RevPAR, jumps 6.6% to $79. RevPAR is expected to grow by double digits in the Denver, Phoenix, and Tampa/St. Petersburg markets. Better still, demand is expected to grow faster than supply over that period -- by 2.6% versus 1.3%. From 2013 through 2020, RevPAR is expected to grow by an annual average of about 4.9%.

One way to turbocharge hotel performance would be for occupancy rates to rise, but STR projects that the supply of "roomnights" will stay about the same to 2020. Impressively, by that time, there are expected to be about 2 billion roomnights in the supply, and average demand of about 1.3 billion, resulting in occupancy of 65%, roughly the current level.

Photo: Tony Webster, Flickr.

These projections could all turn out to be way off if there's another catastrophic event such as 9/11 or a global health crisis that derails many consumers' travel plans. They might also be affected by some other trends. Our growing income inequality, for example, can put pressure on many people's ability to spend on travel, while the growing "sharing economy," featuring companies such as Airbnb, which permit average people to offer lodging in their homes, can steal market share from big hotel chains.

Contenders
Now let's look at some of the biggest and best stocks in the hotel industry. The following table offers seven, along with some metrics for each.

Company

Recent 5-Yr. Avg. Ann. Rev. Growth

Recent 5-Yr. Avg. Ann. EPS Growth

Net Profit Margin

Forward-looking P/E Ratio

Dividend Yield

Choice Hotels International Inc. (CHH 2.47%)

6.1%

5.2%

15.7%

23.2

1.4%

Hilton Worldwide Holdings Inc. (HLT 2.58%)

6.6%*

N/A

6.5%

28.4

N/A

Hyatt Hotels Corporation (H 2.28%)

5.8%

45.1%*

7.1%

38.9

N/A

InterContinental Hotels Group PLC (IHG 1.02%)

3.9%

13.4%

21%

21.2

2.5%

Marriott International Inc. (MAR 4.53%)

4.8%

7.6%**

5.6%

21.6

1.3%

Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT)

4.9%

52.7%

10%

24.9

1.8%

Wyndham Worldwide Corporation (WYND 5.06%)

7.1%

21%

10.5%

15.2

2%

Data: Morningstar.com.
*4.5-year average
**10-year average

Each of them has some aspects that would attract investors. Three that look particularly appealing to me are Starwood Hotels & Resorts Worldwide Inc., InterContinental Hotels Group, and Wyndham Worldwide Corporation.

Photo: faungg's photos, Flickr.

Starwood Hotels & Resorts Worldwide Inc.
Starwood Hotels & Resorts Worldwide sports more than 1,200 properties with more than a third of a million rooms in more than 70 countries. You might have heard of some of its brands, which include Sheraton, W, Weston, Le Meridian, Aloft, and Element. It's growing aggressively abroad, with 81% of rooms in its pipeline outside the U.S., and it's in the midst of shifting to an asset-light business model, selling off its ownership of many properties while keeping them in the Starwood family and collecting fees through franchising. It's also spinning off its time-share business as Starwood Vacation Ownership this year. There has been some speculation that Starwood might buy a smaller hotel-operator or perhaps merge with a big one -- or even get bought out itself.

Starwood isn't quite firing on all cylinders yet, which presents a buying opportunity for believers. Its last quarter featured drops in both revenue and earnings, though the decreases were less than analysts expected. In a conference call, management cited a need to reinvigorate brands such as Sheraton and to drive more top-line growth while cutting costs and becoming a leaner operation. Management is also exploring its options, including the sale of the company. It has been beefing up its dividend in recent years.

InterContinental Hotels Group
Based in the U.K., InterContinental Hotels sports brands such as InterContinental, Holiday Inn, Holiday Inn Express, Crowne Plaza, and Candlewood Suites. It franchises, leases, manages, or owns more than 4,900 hotels and 720,000 guest rooms in nearly 100 countries, with more than 1,200 hotels in its development pipeline. The company also sports the world's first and largest hotel loyalty program, with more than 80 million members worldwide.

Photo: Travel Salem, Flickr.

InterContinental's business model is already relatively asset-light, with 85% of its properties as of the end of December being franchised. In 2014, it opened 41,000 new rooms globally, while signing almost 70,000 new rooms into its pipeline, suggesting solid growth. Recovering economies in Europe should give InterContinental's substantial operations there a boost, while it aims for growth in developing economies. Its CEO Richard Solomons recently noted: "With the shift toward leisure travel, coupled with the 90 million Chinese households able to take long-haul trips by 2023, the country's growing importance in the global travel market cannot be underestimated. With 30 years of experience in China, the recent launch of our new Chinese brand, HUALUXE Hotels and Restaurants, and the rollout of our China Ready programme, IHG is well-placed to meet this growing demand."

Wyndham Worldwide Corporation
Wyndham Worldwide is a major hotelier, with more than 7,670 franchised hotels and more than 667,000 hotel rooms worldwide. Its brands include Wyndham, Ramada, Days Inn, Super 8, Howard Johnson, Travelodge, Knights Inn, Dolce, and Hawthorn Suites, among others. It's also a top dog in vacation exchanges and managed vacation rentals, serving more than 5 million families annually. Perhaps most importantly, Wyndham leads in timeshare ownership, offering its 900,000-some owners access to more than 200 vacation ownership resorts.

You may see a theme emerging here, as Wyndham Worldwide is also an asset-light business, collecting the majority of its earnings from recurring fees via hotel franchising, vacation exchange, vacation rentals, and property management. That has helped its net margins grow into the double digits over the past few years. Better still, Wyndham's dividend, which recently yielded 2%, has more than tripled in the past five years, with plenty of room for further growth.

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

Marriott International, Inc. Stock Quote
Marriott International, Inc.
MAR
$159.55 (4.53%) $6.91
Hyatt Hotels Corporation Stock Quote
Hyatt Hotels Corporation
H
$82.69 (2.28%) $1.84
Wyndham Worldwide Corporation Stock Quote
Wyndham Worldwide Corporation
WYND
$48.20 (5.06%) $2.32
Choice Hotels International, Inc. Stock Quote
Choice Hotels International, Inc.
CHH
$123.03 (2.47%) $2.97
InterContinental Hotels Group PLC Stock Quote
InterContinental Hotels Group PLC
IHG
$60.60 (1.02%) $0.61
Hilton Worldwide Holdings Inc. Stock Quote
Hilton Worldwide Holdings Inc.
HLT
$131.59 (2.58%) $3.31

*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 service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

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.