Each of the three stocks trades for 20 to 22 times earnings. If an investor were to buy each company in its entirety — and if each company were to stop growing altogether — the investor would earn a roughly 5% annual return on investment.
However, each of these companies has grown at least as quickly as inflation over the last decade, and Starwood has grown much faster. Combined with the shortage in hotel rooms, it is not improbable that these companies could experience 4% to 5% annual growth over the next few years.
If you add 5% annual growth to a 5% initial yield, you get an expected annual return of 10%. That’s a pretty good return in a low interest rate environment, so investors with extra cash may want to take a closer look at these stocks.
Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Lodging Industry Set to Reap Huge Profits originally appeared on Fool.com and is written by Ted Cooper.
Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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