Best Hotel Stocks To Buy: When you think about stocks that perform well when the economy is up, consumer goods stocks probably come to mind, but they are not the only companies that tend to do well in a bull market. Stocks in other sectors perform well too. One of the chief industries to see a boost is hotel stocks.
Investing in Hotel Stocks
Hotel stocks can be a smart investment opportunity. The World Tourism Organization says that tourism comprises a full 10% of world GDP, and when the economy is strong, hotel stays tend to increase.
People often go on more vacations, using extra income to travel or visit friends and family. At the same time, businesses may send their workers to different locations, chasing down business, attending conferences, or scouting new locations.
Taken as a whole, everyone in the travel industry wins when the market is strong. Investing in hotel stocks is one way to play this trend. Further, many younger people – Millennials and Gen Xers – are choosing travel and experiences over buying stuff, and they don’t all stay in AirBnBs. Hotel stays may increase because of this population as well.
However, not just any hotel stock will do. Pay attention to the demographics a company serves as well as the diversity of its property portfolio and its efforts to connect with travelers.
The problem is that once you account for location and price point, hotels are largely the same. Budget hotels offer certain amenities and luxury hotels provide an experience while middle of the road chains are, well, middle of the road. A hotel chain has to offer something special to draw travelers in.
Sunstone Hotel Investors (SHO) Is Cash Rich
Sunstone Hotel Investors is a small company. It owns stakes in 21 hotels across nine states and DC.
Most of these properties are big brands, including Hilton, Hyatt, and Mariott. Sunstone does have two unbranded hotels – Boston Park Plaza and Oceans Edge Resort & Marina – but these are very upmarket.
In fact, all of Sunstone’s properties fall into luxury or upscale categories. However, Sunstone is not involved in their operations. Third parties manage everything.
From a competitive standpoint, Sunstone focuses its business activities on what it calls Long-Term Relevant Real Estate or LTRR. This term encompasses properties that the company believes has something unique to offer and difficult to replicate.
Further, the properties in the Sunstone portfolio are located in timeless locations like New York, New Orleans, Boston, Chicago, San Francisco, Portland, and Orlando and ideal locations within those markets.
This combination helps the company exploit drivers that a larger, more diverse chain cannot match. Plus, on top of everything, Sunstone boasts a responsible financial profile with a strong cash position, controlled debt, and low-leverage, making it worth a closer look.
Marriott International (MAR)
Marriott International is one hotel stock you probably know well. The company is a household name however its portfolio of properties includes more than just the Marriott.
It also includes The Ritz-Carlton, Bulgari Hotels & Resorts, W Hotels, Sheraton, Le Meridien, Westin, Courtyard, Four Points, Fairfield, Aloft, Residence Inn, and Springhill Suites.
Within this portfolio, Marriott takes on different roles. Depending on the property and the location of the asset, the company may franchise, license, or manage the asset. As a whole, Marriott operates 2,020 properties and franchises 4,735 hotels.
Marriott brands appeal to a certain consumer. As such, business is often stable amongst its properties. Even seasonality is minimal.
It also has a robust loyalty program called Bonvoy. It costs the company very little, but it has proven to have a high impact on Marriott’s revenues.
The Bonvoy loyalty program encourages so much repeat business that loyalty members made up roughly half of all hotel nights with the chain in 2018. Right now, Marriott controls roughly 15% of the market share for hotels in the US.
Hilton Worldwide Holdings (HLT)
Hilton has 5,685 properties in its portfolio. Some 689 of them are managed by Hilton while 4,874 are franchised. The company owns Hilton, DoubleTree, Embassy Suites, Hilton Garden Inn, Homewood Suites, and Waldorf Astori. Its properties range from midscale to the highest luxury.
Hilton also recently launched two new brands – Motto and LXR – and those aren’t the only new additions on the horizon.
Hilton is aggressively pursuing expansion. The company had over 2,400 in its development pipeline as of the end of 2018 – over half of these rooms are located outside of the United States.
The new properties help establish Hilton’s presence in existing markets and gives it access to 35 countries where it has previously not had a presence.
Intercontinental Hotels Group (IHG)
The Intercontinental Hotels Group owns a wide variety of properties. From Six Senses, its namesake Intercontinental, and Regent to Hotel Indigo, Even Hotels, and the Holiday Inn, this company’s portfolio is extremely diverse and widespread.
It has properties in over 100 countries and more than 5,600 hotels. Over half of its revenues come from properties in the Americas.
The company recently purchased Six Senses Hotels Resorts Spas and a 51% stake in the aforementioned Regent Hotels & Resorts as part of a move to strengthen its presence in luxury markets.
It also signed a deal to operate nine hotels in the UK from Covivio, which helps establish Intercontinental as one of the top luxury hotel operators in England. These hotels will eventually be rebranded to brands within the company’s brand portfolio.
Effectively IHG bought its way into a top position as a luxury hotel chain. However, its experience in this arena is limited. While it has had a change of guard by installing a new Chief Executive Officer, Keith Barr, time will prove whether the company’s focus on luxury is a success.
Are Hotel Stocks a Good Buy?
People may not always need to travel but they do need to stay in hotels when they go places – and there is little competition in short-term property, except amongst themselves.
Companies like AirBnB are disruptive to the industry, but hotels will still appeal to certain people. The challenge is picking the hotel chain that can outpace its rivals.
For investors who want a solid track record, Marriott and Hilton fit the bill. Want a hotel company that doesn’t operate, Sunstone may be the best bet, though it lacks the scale of brand names like Intercontinental Hotels Group.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.