10 Best Hotel Stocks To Buy Now

Published on April 15, 2021 at 8:21 am by Trish Novicio in Hedge Funds, News

In this article, we will take a look at the 10 best hotel stocks to buy now.

The hotel industry has been hit the hardest of all the industries affected by COVID-19, resulting in historically low occupancy, significant job losses, and hotel closures across the globe. According to the American Hotel and Lodging Association, the effect of the pandemic has been nine times that of 9/11 after leisure and travel activities were forcefully halted in early 2020.

Hotel sales in the United States dropped by nearly half in 2020, to $84.6 billion, from $168 billion prior to the pandemic. Room revenue is expected to start recovering in 2022, projected to reach $144 billion. Demand will not return to pre-COVID-19 levels until 2023, according to data intelligence firm STR, with average daily rates (ADR) and revenue per available room (RevPAR) not expected to hit 2019 levels until at least 2024.

Recovery of the Travel and Hotel Industries

According to the outlook of AHLA, the recovery of business and leisure travel has three phases. The initial recovery of the industry started in May 2020, noting an increase in hotel occupancy during weekends. During the second phase of recovery, business travel is projected to accelerate slightly in the second quarter of 2021 as companies begin to book hotels for important meetings, small-scale events and workshops. Group travel is anticipated to continue in the third quarter of 2021, with demand for the fourth quarter expected to be 23% lower than in the fourth quarter of 2019.

Technology will play a great role in reviving the hotel and hospitality industry during the digitalization era. Among the most efficient tech innovations that are helping the industry are the use of QR codes for contactless check-ins, in-app booking of appointments, digital payment transactions, and mobile key rooms. Taiwan-based CyberLink developed the world’s leading AI face recognition engine “FaceMe” which hotels use for compliance monitoring. On the other hand, contactless communication systems “Grace” and “NevoTouchless,” developed by California-based software developer Nevotek, protect both visitors and hospitality workers as they work together to reduce the amount of time spent in face-to-face encounters, such as hotel check-in and check-out.

Budget Hotels Vs Luxury Hotels

According to a McKinsey report, budget and economy hotels in the United States have outperformed luxury hotels due to longer accommodation options and the fact that they are relatively secure despite travel restrictions. Multinational hotel chain Wyndham Hotels & Resorts Inc. (NYSE: WH) is one of the best hotels that delivered a strong performance during the pandemic. Wyndham owns a few of the highest-rated budget hotel brands in North America, including Microtel Inn & Suites, Days Inn, Travelodge, and Super 8. Since the low point in mid-April 2020, Wyndham’s ADR for the domestic, economy, and midscale brands has gradually climbed, from down 21% in mid-April 2020 to just 10% in January 2021.

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Best Hotel Stocks to Buy Now

Many hotel stocks have soared in value over the last few weeks as investors become more confident about the economy’s recovery as over 195 million COVID-19 vaccine doses have been given so far in the United States. As of April 15, Hilton Worldwide Holdings Inc. is up 13.72% YTD, Marriott International Inc. has gained 13.39%, and MGM Resorts International surged 30.94%.

The coronavirus crisis didn’t just hammer the hotels industry. The hedge fund industry famous for its stock-picking skills is also wavering. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Photo by KEEM IBARRA on Unsplash

With this context in mind, here are the 10 best hotel stocks to buy now.

10. Choice Hotels International, Inc. (NYSE: CHH)

Number of Hedge Fund Holders: 15

We start our list of the 10 best hotel stocks to buy now with Maryland-based hotel franchising company Choice Hotels International, Inc. Choice Hotels is a world-renowned hotel franchisor with over 7,100 locations and 590,000 rooms in the United States and over 40 other countries. The company has a market cap of $6.18 billion and recorded a revenue of $774.1 million for the full year of 2020. Shares of CHH increased 57.7% over the past twelve months.

The hedge fund run by Peter Rathjens, Bruce Clarke, and John Campbell is one of the top hedge funds having positions in CHH, with 385,909 shares, worth $41.2 million at the end of the fourth quarter.

9. Pebblebrook Hotel Trust (NYSE: PEB)

Number of Hedge Fund Holders: 16

Ranking 9th in our list of the best hotel stocks to buy now is Pebblebrook Hotel Trust (NYSE: PEB). Pebblebrook Hotel Trust is a real estate investment trust based in Maryland specializing in hotel acquisitions and investments. Also, the REIT invests in resort properties near urban target markets and specific destination markets with a portfolio of 52 hotels across the US.

The company has a market cap of $3.2 billion. The company’s revenue in 2020 slumped to $442.8 million from $1.6 billion in 2019. Shares of PEB jumped 122.9% over the past twelve months.

Ken Griffin’s Citadel Investment Group is one of the top hedge funds with PEB positions, with 27 million shares, worth $28.7 million at the end of the fourth quarter.

8. Service Properties Trust (NASDAQ: SVC)

Number of Hedge Fund Holders: 20

Ranking 8th on the 10 best hotel stocks list to buy now is Service Properties Trust (NASDAQ: SVC). With 149 distinct brands spanning 23 sectors, the Massachusetts-based REIT owns a vast portfolio of hotels and net lease service and necessity-based retail assets across the United States, Canada, and Puerto Rico. As of December 31, 2020, the company owns a net lease portfolio of 799 properties.

The company has a market cap of $2.03 billion. The company’s revenue in 2020 came in at $1.26 billion, down from $2.32 billion in 2019. The stock has gained 134% in the last twelve months.

Out of the hedge funds being tracked by Insider Monkey, Jonathan Kolatch’s Redwood Capital Management held the most SVC shares with 7 million shares worth $87.3 million. The total value of the shares held by 20 hedge funds in Q4 2020 was over $139 million.

7. Host Hotels & Resorts, Inc. (NASDAQ: HST)

Number of Hedge Fund Holders: 22

Ranking 7th on the 10 best hotel stocks to buy now is Host Hotels & Resorts, Inc. Headquartered in Maryland, Host Hotels is among the biggest luxurious REITs in the US owning brands, including Marriott, Fairmont, and Novotel. The S&P 500 company owns a portfolio of 81 hotels and 46,800 rooms worldwide.

The company has a market cap of $12.3 billion and full-year revenue of $267 million in 2020, down from $1.3 billion in 2019. Shares of HST jumped 58.5% over the past twelve months.

Jeffrey Furber’s AEW Capital Management held the most HST shares with more than 4 million shares worth $68.7 million at the end of the fourth quarter.

6. Extended Stay America, Inc. (NASDAQ: STAY)

Number of Hedge Fund Holders: 23

North Carolina-based hotel operator Extended Stay America, Inc. (NASDAQ: STAY) ranks 6th on the list of the 10 best hotel stocks to buy now. The company operates a total number of 646 mid-priced hotels in North America. In March 2021, Extended Stay America announced that The Blackstone Group Inc. (NYSE: BX) and Starwood Capital Group would the company for $6 billion.

The company has a market cap of $3.5 billion. Extended Stay America, Inc.’s total revenues in 2020 fell 14.4% to $1.04 billion from $1.2 billion in 2019. The stock has gained 121.4% in the last twelve months.

Stuart J. Zimmer’s Zimmer Partners held the most shares of STAY, with more than 4 million shares worth $70 million at the end of the fourth quarter.

5. Wyndham Hotels & Resorts, Inc. (NYSE: WH)

Number of Hedge Fund Holders: 26

Ranking 5th on the list of the 10 best hotel stocks to buy now is Wyndham Hotels & Resorts, Inc. (NYSE: WH). Incorporated in 2017, the New Jersey-based hotelier is one of the fastest-growing hotel franchisors worldwide, operating a portfolio of 20 hotel brands including TRYP, Baymont, Ramada Encore, La Quinta, and Wyndham Grand. The company owns approximately 8,900 hotels with 796,000 rooms in 95 countries around the world.

The company has a market cap of $6.8 billion and total revenue of $1.3 billion in 2020. Shares of WH surged 117.2% over the past twelve months.

John Khoury’s Long Pond Capital held the most shares of WH with more than 2 million shares worth more than $129.8 million at the end of the fourth quarter. The total value of the shares held by 26 hedge funds in Q4 2020 was over $666.8 million.

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4. Hyatt Hotels Corporation (NYSE: H)

Number of Hedge Fund Holders: 27

Chicago-based hotel giant Hyatt Hotels Corporation (NYSE: H) ranks 4th on the list of the 10 best hotel stocks to buy now. Hyatt Hotels is one of the world’s leading luxury hotel and resort operators, with a portfolio of 1,000 properties worldwide. Also, the organization runs the World of Hyatt loyalty program, which awards points that can be exchanged for hotel nights and other benefits.

The company has a market cap of $8.5 billion and total revenue of $2.06 billion in 2020. Shares of Hyatt increased 55.89% over the past twelve months.

Mason Hawkins’ Southeastern Asset Management held the most shares of Hyatt with more than 4 million shares worth more than $305 million at the end of the fourth quarter. The total value of the shares held by 27 hedge funds in Q4 2020 was $757 million.

Baron Partners Fund mentioned that Hyatt remains a leading player in the hospitality industry market in its Q4 2020 investor letter:

“Global hotelier Hyatt Hotels Corp. contributed to results on investor expectations that travel will increase as several newly developed COVID-19 vaccines work to help bring an end to the pandemic. While it may take time for Hyatt’s business and group customers to return, a strong leisure business is aiding recovery in revenue per available room. Hyatt has also successfully lowered its breakeven occupancy levels by reducing fixed costs and has cut its capital budget to preserve cash. Hyatt’s strong balance sheet is allowing it to weather the pandemic-generated disruption.”

3. MGM Resorts International (NYSE: MGM)

Number of Hedge Fund Holders: 44

Casino resort operator MGM Resorts International (NYSE: MGM) ranks 3rd on the list of the 10 best hotel stocks to buy now. Headquartered in Las Vegas, MGM Resorts International owns casino firms, entertainment, and hotel resorts in the US and China. MGM Resorts’ portfolio includes 29 exclusive hotel and destination gaming offerings, including some of the industry’s most well-known resort brands like Bellagio, MGM Grand, ARIA, and Park MGM.

The company has a market cap of $20.4 billion and a full-year 2020 revenue of $5.2 billion, about 40% of 2019 revenues. Shares of MGM surged 198% over the past twelve months.

Keith Meister’s Corvex Capital held the most shares of MGM, with more than 22 million shares worth $710 million at the end of the fourth quarter. The total value of the shares held by 27 hedge funds in Q4 2020 was $2.17 billion.

Memphis-based Longleaf Partners Fund mentioned that MGM remains as one of the successful casino and entertainment companies amid a global crisis:

“MGM Resorts (54%, 2.10%; 46%, 2.32%), the casino and online gaming company, quickly became a top contributor for the year after we initiated the position in the third quarter. 3Q EBITDA came in moderately above breakeven, a strong improvement from the COVID lockdown-impacted second quarter. MGM’s regional casinos performed very well, while flight restrictions caused its Las Vegas properties to lag. More importantly, CEO William Hornbuckle finished implementing $450 million of necessary recurring annual cost savings, which should result in a 15% increase in pretax earnings once post-vaccine leisure travel resumes and MGM revenues normalize. The stock remains cheap against this post-reopening earnings power. BetMGM, the company’s new online gaming and sports-betting app, is on track for over $150 million revenues this year and growing very quickly in a market with enormous potential. Comparable pure-play digital gaming businesses trade for extremely high multiples today, and BetMGM has a sustainably superior economic model due to its lower customer acquisition costs.”

2. Marriott International, Inc. (NASDAQ: MAR)

Number of Hedge Fund Holders: 58

Securing the second spot in the 10 best hotel stocks to buy now is Marriott International, Inc. (NASDAQ: MAR). Headquartered in Maryland, Marriott International is one of the leading hoteliers in the world with a portfolio of 30 brands, including Ritz-Carlton, The Luxury Collection, and Marriott Hotels & Resorts. The company owns approximately 7,600 properties with nearly 1.4 million rooms in 131 countries.

The company has a market cap of $48.7 billion. The company’s revenue in full-year 2020 came in at $10.6 billion, down 50% from 2019. The stock has gained 86% in the last twelve months.

Touk Sinantha’s AltraVue Capital held the most shares of MAR with 76,570 shares worth $11.3 million at the end of the fourth quarter. The total value of the shares held by 58 hedge funds in Q4 2020 was $3.42 billion, up from $2.33 billion in the preceding quarter.

1. Hilton Worldwide Holdings Inc. (NYSE: HLT)

Number of Hedge Fund Holders: 60

Topping the list of the 10 best hotel stocks to buy now is Hilton Worldwide Holdings Inc. (NYSE: HLT). Based in Virginia, one of the world’s largest hotel firms manages, franchises, owns, and leases hotels and resorts, as well as licenses its trademarks and intellectual property. Hilton opened 414 new hotels totaling 55,600 rooms in 2020, representing a net unit increase of 47,400 rooms.

The company has a market cap of $35 billion and full-year revenue of $4.3 billion in 2020, down from $9.4 billion in 2019. The stock has gained 80% over the past twelve months.

Bill Ackman’s Pershing Square held the most shares of HLT with 13 million shares worth $1.48 billion at the end of the fourth quarter. The total value of the shares held by 60 hedge funds in Q4 2020 was $6.02 billion.

New York-based Pershing Square Holdings Ltd mentioned that HLT remained resilient through the pandemic in its Q4 2020 investor letter:

“Hilton is a high-quality, asset light, high-margin business with significant long-term growth potential, led by a superb management team. The hotel industry was one of the most negatively impacted as a result of the COVID-19 pandemic. As the pandemic set in, Hilton’s management team deftly navigated a challenging situation and took decisive actions to right size Hilton’s cost structure for the current economic environment, and fortify its balance sheet. As a result, Hilton managed through the pandemic and positioned the company to generate enhanced margins, improved cash flows and returns, once the business recovers to pre-COVID-19 demand levels.

Hilton’s systemwide occupancy bottomed at 13% in April 2020, but rebounded to approximately 40% during Q3 and Q4 as COVID-19 became better understood and travel restrictions lifted. Positive demand momentum experienced in the summer and early fall were disrupted in November and December due to rising COVID-19 cases and tightening travel restrictions.

Hilton management expects a more pronounced and sustained recovery to commence in the second half of 2021, particularly as the COVID-19 vaccine is rolled out more broadly, driven by increased leisure demand and a rebound in business travel. Management’s conviction is driven by a number of factors which include: (1) pent-up leisure travel demand, (2) large amounts of unspent consumer savings, (3) large corporations indicating a desire to resume business travel, (4) improving business transient booking trends, (5) proprietary survey work in which 80% of respondents express a desire to travel, and a substantially better second half of 2021 group booking calendar.

Despite significant headwinds, Hilton continued to execute on its long-term strategy, and opened 47,400 net new rooms in 2020 (+5%). Hilton’s pipeline expanded 3% year-over-year to 397,000 rooms, or 39% of the existing room footprint, 51% of which are currently under construction. We believe Hilton will continue to grow its market share over time given independent hotels’ increased interest in seeking an affiliation with global brands, particularly in the wake of the pandemic.

Hilton is well positioned to thrive as the recovery sets in due to its best-in-class management team, portfolio of great brands, dominant market position, capital-light economic model, deep development pipeline and strong balance sheet. Hilton is in the early stages of a multi-year recovery, which we believe will deliver long-term earnings that are meaningfully greater than pre-2020 levels.”

Image by Автандил Цецхладзе from Pixabay

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