December 15th, 2015

Plenty of Travel-Related Stocks Ripe for Bargain Hunting with Multi-Year Outlook

I find it interesting that the financial community is making much about the various drug companies working on coronavirus vaccines. History suggests that 90-180 days from now the outbreak will be off the radar and the global economy will be bouncing back. I am not sure a SARS vaccine, for instance, has much financial value these days. These strands of virus tend to have one-off impacts. Much like during the SARS outbreak, or after the 9/11 attacks, travel stocks are taking it on the chin right now. As a long-term contrarian investor, I cannot help but allocate some existing cash balances into these stocks. 2020 will be a throwaway year from a financial perspective and the markets should relatively quickly refocus on 2021 and a more normalized operating environment. Does it matter which companies one targets? In many cases, probably not. Having already held Expedia (EXPE) , and being only more excited after hearing Barry Diller’s plan to reinvigorate the company’s business, I can’t help but be elated that the post-earnings rally we saw earlier in the month has now been given back completely. I am modeling $10 of free cash flow per share in 2021 (assuming a normalized economy) and the stock is fetching $105. Plug in your expected multiple of FCF and calculate the upside accordingly. Booking Holdings (BKNG) has more international exposure and reports after the bell today. At $1,675 and about $100 of per-share free cash flow, that one is worth watching as well. I have also been looking at the cruiseline sector and already had global market leader Carnival (CCL) on my watchlist pre-virus due to a depressed stock price (due to a large capex cycle depressing free cash flow generation). I have begun accumulating shares, as the single digit P/E ratio and dividend yield north of 5% (payout ratio of less than 50% on normalized earnings) appear favorable to historical levels. To be clear, I am not predicting how bad coronavirus will be, or when travel-related stocks will bottom. Instead, I am taking my normal 2-3 year (minimum) holding period assumption and making a bet that buying high quality travel companies during times of near-term distress will pay off over the long-term. History suggests it will.
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