It's easy to be bullish on travel and tourism stocks, especially with countries rolling out COVID-19 vaccines and easing travel restrictions. Who couldn't use a vacation right now?
U.S. travel spending dropped by 42% in 2020. But by April 2022, U.S. travel spending reached $100 billion, increasing 3% to rise above pre-pandemic levels. U.S. travel is back, at least for leisure; business travel is still complicated because video conferencing tools have made remote meetings more advantageous in many circumstances. U.S. travel spending has historically grown between 2% and 4% annually, according to the U.S. Travel Association, so there’s still room for a bigger rebound.
International travel is a different story. Spending fell by 76% in 2020 and only recovered 4% in 2021, according to the World Tourism Organization. Although international tourist arrivals were up 130% in January 2022, ongoing COVID-19 travel restrictions and Russia’s war with Ukraine are putting a damper on a fully fledged rebound. The World Tourism Organization’s data implies international travel arrivals remained down more than 60% in March 2022 compared with 2019. Still, it’s safe to say there’s significant pent-up demand to travel again, and eventually overseas tourism will make a comeback.
Travel and tourism is a broad category, with a diverse list of well-known brands. For those planning to invest money in travel companies, you have plenty of options.
There's a wide range of transportation, lodging, and amusement companies to get you to your destination and make sure you enjoy your stay.
Best travel stocks to buy
There's a wide range of transportation, lodging, and amusement companies to get you to your destination and make sure you enjoy your stay. Since the companies vary so much, it's hard to nail down a single key metric to watch. For example, some travel companies are asset-heavy transportation businesses; others are essentially tech companies.
The best travel and tourism stocks do share some traits, though -- namely strong brand recognition, an easy-to-use website or app, and a loyal customer following. Here are some of the top travel and tourism companies:
1. Booking Holdings
Booking Holdings (NASDAQ:BKNG) is one of the largest online travel portals. It's the parent company of several popular travel booking sites, including:
While the company has suffered during the pandemic, Booking slashed its global workforce to save more than $300 million annually. It came out of the ordeal with billions in cash on its balance sheet available to steady the company during down times. Both revenue and profitability rebounded rapidly in 2021, a trend that continued to kick off 2022. As measured by free cash flow, the company had almost fully recovered its pre-pandemic profitability by the first quarter of 2022.
Few companies have the ability Booking does to provide vacationers with a diverse set of travel planning and comparison tools. The travel company's global online reach should serve it well in the years to come.
2. Southwest Airlines
Southwest Airlines (NYSE:LUV) has endured the pandemic better than most airline stocks. It was the first major airline to bounce back and post a quarterly profit during the pandemic, and it’s well-positioned to benefit now that U.S. air travel is returning to 2019 levels.
The airline has been around for more than 50 years now. Although it doesn’t have the same reputation of being an outsider disrupting the industry anymore, it’s still a well-run air travel company. Southwest has some of the best operating profit margins in the business.
Southwest also has the best balance sheet in the airline industry (it has net cash and short-term investments, while its peers have more debt than cash). It’s one of the few airlines that has never fallen into bankruptcy. When flight demand wanes, its streamlined nature allows it to reduce expenses and emerge healthy when the good times start rolling again.
3. Marriott International
Marriott International (NASDAQ:MAR) is one of the world's largest hotel companies, with more than 8,000 properties spread across almost 140 countries. It's a holding company for 30 brands, including:
- The Ritz-Carlton
- Courtyard Hotels
- Residence Inn
The company has an asset-light business model, which is unique compared to other real estate investment options. It earns fees for licensing its brands and managing properties but doesn't incur the expenses of actual property ownership. Marriott's extensive geographic reach, world-class brands, and global loyalty programs make it a steady, long-term, winning stock.
Like many other companies in the travel space, Marriott’s revenue and profitability has been rebounding and had approached 2019 levels by the first quarter of 2022.
Airbnb (NASDAQ:ABNB) allows homeowners and property managers to list homes, condos, and other unique places to stay online. It’s amassed a vast number of listings across the globe. Many of them are in less-traveled neighborhoods and unique locations that hotel chains can't match.
Remote work looks like it’s here to stay because of the pandemic, and Airbnb has emerged as a top beneficiary of this change in the global workforce. Millions of people around the world are now working while they travel, and extended-stay bookings were a top area of growth for Airbnb in 2021.
The company recently upgraded its platform by adding flexible-date search tools and making the process to become a host faster and easier. Before the pandemic, Airbnb enjoyed years of explosive growth, and it’s extending its hot growth streak even before the pandemic ends. This isn’t just a travel and tourism rebound play; Airbnb is a top growth stock worth considering.
5. The Walt Disney Company
The Walt Disney Company's (NYSE:DIS) theme parks and hotels are some of the world's premier vacation destinations. Disney cruise ships are also popular and offer family-themed voyages that are set to resume this year. These in-person experiences made a comeback in 2021 for Disney and are profitable once again.
Although many travel companies are totally reliant on travel demand to generate income, Disney has other irons in the fire. In addition to travel, the company makes money from television, movies, streaming content (Disney+, Hulu, and ESPN+), and merchandise. These numerous revenue streams are part of the reason why many investors consider Disney one of the most undervalued stocks for 2022.
Looking ahead to the last half of 2022, Disney’s international theme parks are likely to remain a top destination, although ongoing pandemic restrictions will keep all-out growth in check. But with movie theaters open once again, Disney is poised to have a solid year as its entertainment portfolio continues to capture audiences around the world. Look for Disney’s bottom line to make a more meaningful recovery as revenue reaches new records in 2022.
Source: Getty Images
Travel and leisure ETFs
If you're bullish on travel and tourism but would rather not invest in individual companies, then buying shares in an exchange-traded fund (ETF) may be a better option. Travel-focused ETFs invest in large numbers of travel and tourism companies and provide instant portfolio diversification within the sector.
Three travel ETFs to consider:
- The ETFMG Travel Tech ETF (NYSEMKT:AWAY) is a travel technology-focused ETF. About half of its holdings by value are bookings and reservations companies, with the remainder split among ride-sharing, price comparison, and travel advice businesses. The fund has 33 stocks and an annual expense ratio of 0.75% (or $7.50 a year for every $1,000 invested.
- The U.S. Global Jets ETF (NYSEMKT:JETS) is a niche travel ETF focused on airlines. U.S. airline stocks make up more than half of the fund's holdings, which also include the stocks of several international carriers. The fund has an annual expense ratio of 0.60%.
For a more diversified travel and leisure portfolio, consider an ETF such as the Invesco Dynamic Leisure and Entertainment ETF (NYSEMKT:PEJ). The portfolio contains 31 U.S. stocks spread across travel, accommodations, and entertainment businesses. The fund has an annual expense ratio of 0.55%.
Related investing topics
You can buy space travel stocks
Your travel-related investments are no longer confined to this planet. Several companies are exploring space, including publicly traded Virgin Galactic Holdings (NYSE:SPCE). Richard Branson's company is planning to begin offering commercial flights into space -- for $450,000 per person -- in late 2022.
Another option is the Procure Space ETF (NYSEMKT:UFO). This ETF invests in a variety of companies that are catering to Virgin Galactic and its competitors as they work to take flight to the next level.
Don’t forget ecotourism stocks
Ecotourism is a fast-growing niche, especially among younger travelers. The objective of ecotourism is to learn about and support conservation efforts in exotic and often threatened natural environments and to visit those places without causing any further ecological damage.
Specialized tours, lodging in remote locales, and minimizing carbon emissions while traveling are all forms of ecotourism. Although most ecotourism companies are not publicly traded, travel booking companies such as Airbnb and Booking.com provide services that allow vacationers to find and schedule ecotourism experiences.
JetBlue Airways (NASDAQ:JBLU) stands out for its commitment to achieving net-zero carbon emissions by 2040. The discount airline has also established partnerships with multiple environmental organizations, including The Nature Conservancy and The Ocean Foundation.
Travel companies are often niche, enabling you to invest in a variety of travel and tourism stocks that cater to your particular interests and investment priorities. Investors interested in ecotourism should look for eco credentials when evaluating travel and tourism stocks.
Nicholas Rossolillo has positions in Airbnb, Inc. The Motley Fool has positions in and recommends Airbnb, Inc., Booking Holdings, and Walt Disney. The Motley Fool recommends JetBlue Airways, Marriott International, and Southwest Airlines and recommends the following options: long January 2023 $115 calls on Marriott International, long January 2024 $145 calls on Walt Disney, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.