Last month, around Memorial Day, I wrote to you that it was shaping up to be a very strong summer travel season.
And…wow, has that turned out to be the case.
Gas prices have only slid further: bad news for energy companies, which I’ve largely stayed away from in my Quantum Edge services, but certainly helpful for ordinary Americans on road trips.
But international travel – particularly to Europe, which I myself just returned from – is really hot this year. “Travelers are flocking to Europe in record numbers,” confirmed a New York Times article Tuesday, in which travelers and locals reported overcrowding in Paris, Rome, Sicily, Croatia…everywhere.
Travel stocks are running equally hot this past month, as we see below. This ETF is a composite of hotel stocks like Marriott (MAR) and Hilton (HLT), airlines like Delta (DAL), and cruise lines like Carnival (CCL) and Royal Caribbean (RCL)… and it’s up about 13%, beating the S&P nearly 3 to 1.
And that’s hardly the end of the story. Memorial Day travel may have been the third busiest on record – but this 4th of July weekend is THE busiest on record… with nine weeks of travel season still ahead.
So, here are the most interesting findings on specific stocks from my Quantum Edge system as the summer wears on.
I argued in May that cruise lines were a “dark-horse contender.” Analysts were skeptical that this summer could live up to the pre-pandemic glory days. But life has gotten more expensive since then – and cruise packages are about your only hope left of finding a bargain.
Most importantly, Wall Street appears to be buying into this narrative. Literally buying, as cruise companies were racking up plenty of Big Money buy signals in my system.
That Big Money flow continued in June, pushing stocks like Carnival to lofty heights… even before the fundamentals could catch up.
One month and one surge later, I’ve got to revise my outlook on cruise stocks from “dark horse” to “overheated.”
Carnival, for one, now has a blisteringly high Technical Score of 94.1 – there’s not much more room before maxing out – versus paltry Fundamentals of 37.5. That’s a notable decline from 41.7 last month.
Royal Caribbean still has the best fundamentals, 58.3, but with technicals of 94.1, the same dynamic of very little headroom and weak fundamentals is also in effect. Norwegian Cruise Line (NCLH), same story: Fundamentals of 45.8 versus technicals of 94.1.
With cruise companies having taken on plenty of debt, and investors often still waiting for revenue growth to translate into profits… I’m going to recommend that you look elsewhere right now.
Hotels & Hospitality
Rooms are in such short supply that travel agents are complaining to The New York Times about having to turn customers away: “Sorry, I can’t find anything in Greece right now.”
Demand exceeding supply is good for any business. But… my caveat in this case is that some of the hotels, too, are weighed down by concerningly high debt.
Let’s not forget that hardly anyone was traveling during the pandemic – certainly not to stand in line at the Louvre or the Empire State Building. Yet hotels had to pay for extra cleaning services and fancy air filtration systems to stop the spread of COVID.
Debt became “the elephant in the room” for the hotel industry, just like the cruise lines. (You must need really big air filtration systems when you have elephants in the rooms.)
Hilton, however, is one that isn’t saddled by extreme debt these days, and it rates well on growth and profits, too. HLT’s latest Big Money buy signals were in February, so Wall Street hasn’t been rushing in lately – but institutional ownership is very high overall, at 96.8%.
All in all, HLT sits right below my preferred buy zone. Technicals aren’t too hot, but Fundamentals are solid.
Overall, it’s nice to see life go on and people enjoying their vacations despite the never-ending drumbeat of “Inflation!” and “Recession!” in the news. These kinds of trends bode well for the economy and the stock market in the second half of the year.
I’ll keep you informed on the latest developments here in Power Trends. And you can subscribe to my Quantum Edge services to get timely buy and sell alerts on my top stock plays.
Editor, Jason Bodner’s Power Trends