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Best Hospitality Stocks

Here are the hospitality companies that could be winners for your portfolio.

By Lyle Daly – Updated Jul 11, 2022 at 4:04PM

If you're looking for the best hospitality stocks to invest in, you have a variety of options. This sector includes businesses based around lodging, food and drinks, tourism, and more, so you'll find hotel stocks, restaurant chains, and casinos among the top investment options.

Top hospitality stocks

The industry as a whole went through difficulties because of COVID-19. Although many hospitality companies saw profits drop, the most successful have been able to weather the storm and rebound as pandemic restrictions have gradually relaxed. Here are the top hospitality stocks:

A smiling couple talking to a woman at the front desk.
Image source: Getty Images.
Company Market Capitalization Description
Hilton Worldwide Holdings (NYSE:HLT) $35 billion Hotel company with thousands of properties around the world.
Texas Roadhouse (NASDAQ:TXRH) $7 billion Family restaurant chain offering a casual atmosphere.
Century Casinos (NASDAQ:CNTY) $400 million Gaming company with casinos in the United States, Canada, and Poland.
Choice Hotels International (NYSE:CHH) $7 billion Hotel franchisor that focuses on midscale and budget-friendly properties.
Monarch Casino & Resort (NASDAQ:MCRI) $1 billion Family owned gaming company with dining, lodging, and live entertainment.

Source: Company financials.

1. Hilton Worldwide

With more than 6,500 properties around the globe, Hilton is one of the world's largest hotel companies. Its diverse portfolio includes several midscale and premium properties, as well as its luxury Waldorf Astoria and Conrad Hotels brands. It also boasts a loyalty program, Hilton Honors, with more than 115 million members.

Like other big travel and tourism stocks, Hilton has posted strong numbers, thanks to an increase in travel demand. In the second quarter of 2021, revenue per available room grew 234% year over year. The hotel chain, which has traditionally prioritized growth, also added 119 new hotels and nearly 20,000 rooms that same quarter.

Hilton's occupancy rates and revenue per available room still haven't reached pre-pandemic levels. Its recovery is also being impacted by restrictions abroad and the delta variant. But with its popular brands and loyalty program, the company is well positioned for future growth.

2. Texas Roadhouse

Founded in 1993, Texas Roadhouse is a casual dining favorite among families. The restaurant company and its franchises operate at more than 640 locations. Most of its restaurants are in the U.S., but the company has also expanded internationally.

Texas Roadhouse has done an excellent job of adjusting to the changes brought on by the pandemic. Even though it has traditionally focused on sit-down dining, it has pivoted to carryout orders and started offering meal kits. Those adjustments helped the restaurant chain stay afloat during 2020, and it has continued to pay dividends as dining guest counts have returned to pre-pandemic levels.

Results during reopening have been very impressive. Total revenue in the second quarter of 2021 was $899 million, an 88.7% increase from 2020 and a 30.3% increase from 2019. Average guest counts are comparable to 2019 levels, and the number of to-go orders is about two-and-a-half times higher than 2019.

3. Century Casinos

Century Casinos is a gaming company that operates regional mid-size casinos. Most of its casinos are in the U.S. and Canada, and it also has a controlling stake in several casinos located in Poland.

In the second quarter of 2021, Century Casinos posted record numbers of $92.2 million in revenue and $25.2 million of adjusted EBITDA. Those results are even more impressive when you take into account that its casinos in Canada and Poland were closed for most of the quarter.

Leisure companies could still face problems from the COVID-19 pandemic. In Century Casino's case, there's the possibility that some of its locations could need to close again depending on infection rates in the area. Even if that happens, this gaming company has done a good job of cutting costs and remaining profitable.

4. Choice Hotels

While many hotel stocks were hit hard in 2020, Choice Hotels saw a slight increase in its price. It also didn't see its occupancy rate or revenue drop quite as much as the industry average.

A key advantage of Choice Hotels is its business model. As a hotel franchisor, Choice Hotels doesn't bear the upkeep or management costs of its properties. That falls on the franchise owners, who pay a licensing fee and a percentage of revenue to use the hotel chain's brands and systems.

Choice Hotels' revenue per average room in June and July of 2021 exceeded its 2019 numbers by 5% and 15%, respectively. Going forward, it could face challenges from competitors with more luxury and urban properties. The company's portfolio largely consists of midscale properties outside major city centers. That was beneficial at the height of the pandemic, but it could be a disadvantage if consumer travel preferences change.

5. Monarch Casino & Resort

Monarch Casino & Resort has two locations — one in Reno, Nevada, and the other in Blackhawk, Colorado. Even though this hospitality company doesn't operate many properties, the two it does have delivered high revenue numbers during reopening.

For the second quarter of 2021, Monarch had $97.72 million in revenue, a 544.8% increase from 2020. It was also 55.7% higher than second-quarter revenue from 2019. The company has been proactive about expanding its casinos and its game offerings, both of which could help Monarch attract more guests and increase profits even more.

The biggest potential issue for Monarch is that COVID-19 restrictions in either of its locations could lead to a dip in revenue. Even if that happens, this casino and resort company is still a good long-term bet, especially since Nevada and Colorado are seeing substantial population growth.

Hotel REITs

A real estate investment trust (REIT) is another way to add hospitality stocks to your portfolio. These trusts invest heavily in real estate and pay at least 90% of taxable income to shareholders. Hotel REITs focus specifically on hotel properties. If you want to invest in hotels and receive dividend payments, then hotel REITs are a good choice.

The biggest hotel REIT is Host Hotels & Resorts (NASDAQ:HST), with a portfolio of more than 80 hotels that primarily consists of luxury properties and resorts. For a hotel REIT with more midscale properties, there's Apple Hospitality REIT (NYSE:APLE), which has in excess of 210 hotels in its portfolio. Its comparatively affordable hotels are popular for business travel.

Both these REITs suspended dividends during the pandemic to save money. While Host Hotels & Resorts hasn't reinstated its dividends yet, Apple Hospitality did so during the first quarter of 2021. Although not every hotel REIT is back to paying dividends, that should change as travel resumes and they return to profitability.

Trends to watch in hospitality

The hospitality industry is recovering from the COVID-19 pandemic, but it faces challenges going forward. Travel and occupancy restrictions can change quickly in areas with high infection rates. For many members of the hospitality industry, including hotel, restaurant, and cruise line stocks, the recovery process has been stop and go.

Shorter trips and excursions have become common as people feel more comfortable traveling closer to home. Hotels with a variety of different property types and casinos that serve large local markets can both benefit from this trend.

For food service businesses, takeout orders and delivery were a lifeline in 2020. Even with sit-down dining returning, restaurants that offer different options have a significant advantage.

All hospitality businesses will be affected by developments with COVID-19. As we've seen so far, the companies that can adjust when needed will have the most success.

Related consumer discretionary topics

Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Texas Roadhouse. The Motley Fool has a disclosure policy.

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