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Summer brings no-brainer buys.
Summer’s here and the time is right for dancin’ in the stock market. Depending on the state of the economy, you can find a few stocks that are geared towards profitable summers, as their businesses tend to pick up. Even though there are signs the economy may be turning down, I’m not yet seeing signals that these stock winners are going to get hurt.
These stock winners mostly relate to travel and other summer activities that Americans like to engage in. The New York Federal Reserve’s Q1 Report on Consumer Debt showed that, for the first time in five years, credit card debt is rising again. That means people are putting more expenses on plastic. That means summer vacations for many folks who prefer not to think about how they will actually pay for them.
Summer’s Hottest Stock Winners
1. Ashford Hospitality Trust (NYSE: AHT)
Ashford Hospitality Trust (NYSE: AHT) is a diversified hotel real estate investment trust, with 114 properties in 29 states across numerous brands, from upper-midscale all the way to luxury. The company owns Hampton Inns, Courtyards by Marriott, Hilton, Homewood Suites, Residence Inns, SpringHill Suites, Embassy Suites, Sheraton, and even the Ritz-Carlton in Atlanta. This broad brand and geographical diversification gives it the upper-hand for summer business and vacation travel.
It has outperformed its peer average in the hotel REIT category across every single time period since its IPO. It has the highest insider ownership (18%) of any hotel REIT, with its nearest competitor at only 4%. Hotel demand is expected to exceed supply through at least 2015, with RevPAR growth forecasted to grow 6.7% this year and 7% next year.
During the financial crisis, Ashford took a mezzanine position in a 28-hotel portfolio, which it foreclosed on and has since restructured. This has resulted in a significant increase in the portfolio’s equity value and is demonstrative of the type of visionary management the company has. It also pays a 4.4% yield.
2. Ashford Prime (NYSE: AHP)
You may also want to have a look at a spin-off, Ashford Prime (NYSE: AHP) which owns a 10-hotel portfolio of upscale properties. It’s not as diversified, but still has amazing yields and a strong balance sheet.
3. Delta Air Lines (NYSE: DAL)
Delta Air Lines (NYSE: DAL) is normally a name I would stay away from, as the airline business stinks. However, I am seeing strong anecdotal evidence that airfares are going through the roof this summer. Airline mergers have resulted in fewer airlines competing for the travel dollar, and as often happens when demand exceeds supply, prices go up.
The airline’s trade association sees summer 2014 air travel rising to its highest level in six years, with a record number of passengers also set to fly internationally. Delta has a solid domestic and international presence and has cleaned up its balance sheet, with $3.8 billion in cash offsetting its $9 billion+ in debt. But free cash flow is $2 billion, giving it plenty of “leg room.”
4. The Priceline Group (NASDAQ: PCLN)
Somebody has to book all this travel, and that’s why I still like The Priceline Group (NASDAQ: PCLN), despite a terrible decision to purchase restaurant reservation website OpenTable (NASDAQ: OPEN) for $2.6 billion in cash, half of what Priceline had in its treasury, after backing out debt.
Nevertheless, Priceline remains the best choice in the online travel-booking sector. It still has $2.6 billion in cash. With about $47 or so in cash per share, it effectively trades at $1,200 per share. At $52.19 in projected EPS for FY14, that means it trades at 23x estimates. Considering that EPS is supposed to grow 25% in FY14 over FY13, and that Priceline generated $2.2 billion in free cash flow in FY13, I think the companys is cheap here. It has virtually no capex to speak of, and its free cash flow just increases every year.
I’ll be concerned about the company’s long-term prospects if management keeps overpaying for dumb acquisitions, though.
Here’s hoping your portfolio remains hot while you keep cool this 4th of July.
Lawrence Meyers owns shares of AHT and AHP.
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