The central thesis for buying hotel stocks right now is a belief that demand for travel will continue. And if that’s true, then the best hotel stocks will offer investors a combination of value and growth.
Lost amid the ongoing concerns about flight delays is that Americans continue to travel. After two summers when travel was either non-existent or severely curtailed, Americans are taking long-planned vacations. And that’s good news for the hotel industry, which has been battered in the last two years.
From personal experience, I can see that hotels are busier than they were during the pandemic. However, data from STR shows occupancy is still slightly below pre-pandemic levels. On the other hand, the same research shows revenue per available room and average daily rates are both higher.
Here are the seven best hotel stocks to buy now:
Best Hotel Stocks: Marriott International (MAR)
Source: DELBO ANDREA / Shutterstock
The first on our list of best hotel stocks is Marriott International (NYSE:MAR), the parent company for some of the industry’s most iconic premium hotel brands. Marriot is also home to one of the largest loyalty programs, which currently has over 140 million members.
The global pandemic didn’t do much to curtail the company’s expansion plans, particularly as it relates to international markets. The company expects to see revenue per available room grow between 2% and 4% in 2022 compared to 2019. This may be starting to show up in the company’s revenue, which hit $4.2 billion in the second quarter. That was just shy of pre-pandemic levels and the earnings picture is improving, as well.
MAR stock has a price-to-earnings (P/E) ratio of 24.5 times. If revenue and earnings grow as expected, Marriott stock looks like a solid buy.
Choice Hotels International (CHH)
Source: II.studio / Shutterstock.com
If Marriott represents the luxury end of the market, Choice Hotels International (NYSE:CHH) falls into the “something for everybody” category. The hotel chain features several brands that target various income levels.
While some might see that as a “jack of all trades” positioning, it appears to be working. In the last couple of quarters, when prior-year comparisons have been more difficult, both revenue and earnings have beaten pre-pandemic levels. Choice Hotels is also benefiting from the growth in extended-stay revenue due to the blending of business and leisure travel.
As of this writing, Choice Hotels has a P/E ratio of 20 times, which is slightly above the sector average, but not incredibly overvalued. Projections for future growth and earnings are above pre-pandemic levels. The company also generated a record amount of free cash flow in 2021. Plus, after institutions sold more CHH stock than they bought in the fourth quarter, that changed dramatically in the first quarter.
Best Hotel Stocks: InterContinental Hotel Group (IHG)
Another of the best hotel stocks to consider is InterContinental Hotel Group (NYSE:IHG). Like many hotel chains, the U.K.-based company is showing strong year-over-year (YOY) revenue growth. But when it comes to hotels, a fairer comparison is to 2019. On that measure, IHG’s revenue is still lagging behind.
A big reason for that is the company has larger exposure to business and international travel than some other hotel chains. And looking out over five years, revenue is not expected to get back to pre-pandemic levels.
However, what makes the hotel chain compelling is its ability to expand. In 2021, the hotel chain added more than 400 hotels into its portfolio. That’s one reason why earnings are expected to get back to pre-pandemic levels by 2023.
IHG has a about the same P/E ratio as Marriott. It also has a price target that suggests an upside of nearly 20%. That means IHG stock is likely slightly undervalued, even if analysts lower their price targets.
Source: Michael Neil Thomas / Shutterstock.com
MGM International (NYSE:MGM) suffered from a double whammy during the pandemic. As a company that has exposure to both casinos and hotels, MGM experienced a dramatic loss in revenue during the lockdown.
But what was a negative during the pandemic is now giving the company the opportunity to rapidly grow as casinos become a destination for the revenge travel that’s sweeping the country. And in their most recent earnings report, MGM is posting revenue and earnings that are above pre-pandemic levels.
MGM also has exposure to the casino industry in Macau, which is starting to come back as China begins to ease its Covid-19 lockdowns. Plus, MGM also has its own sportsbook, BetMGM. As I pointed out in March, revenue from the sportsbook jumped 500% YOY in 2021.
Best Hotel Stocks: Bluegreen Vacations (BVH)
Source: antoniodiaz / Shutterstock
Will the pandemic cause Americans to rethink time shares? That’s the argument for investing in Bluegreen Vacation (NYSE:BVH). The company markets and sells vacation ownership and manages resorts in some of the most popular destinations in the United States. The primary source of revenue for the company is the Bluegreen Vacation Club.
Like many companies in this sector, Bluegreen Vacations suffered a sharp drop in revenue during the pandemic. However, the company did manage to cut costs, which led to free cash flow of over $63 million, its highest level since 2014.
Additionally, BVH stock trades at an attractive P/E ratio of 6.28 times. The company’s forward price target shows an upside of more than 125%. That may be coming down, but even if it’s cut in half, investors will still get a nice reward for owning the stock.
Hersha Hospitality Trust (HT)
Next on this list of best hotel stocks is Hersha Hospitality Trust (NYSE:HT). This is a small real estate investment trust (REIT) that specializes in “gateway cities” across the United States. This allows the company to capitalize on properties that have a higher revenue per available room. And with many of these cities being among the most popular destinations, the company is likely to post strong revenue and earnings.
Additionally, as a REIT, it delivers a significant portion of its earnings back to shareholders in the form of a dividend. The company’s dividend payout ratio is 2.7%. It approximately 67% institutional ownership and buying volume (in terms of dollars invested), which outpaces selling volume by two to one. That suggests now may be a good time for risk-averse investors to invest in HT stock.
Best Hotel Stocks: AdvisorShares Hotel ETF (BEDZ)
Source: Dragon Images / Shutterstock
Travel exchange-traded funds (ETFs) take away some of the risk that comes with owning individual stocks. And the last of the best hotel stocks on this list is one of the newer ETFs. AdvisorShares Hotel ETF (NYSEARCA:BEDZ) debuted in April 2021. The actively managed ETF gives investors exposure to the global hotel and lodging industry. At the end of 2021, the company had 31 stocks in its holdings. As of this writing, the stock has a market cap of $4.73 million.
That being said, the fund is not a pure-play hotel ETF. It also has exposure to the communications, financials and consumer discretionary sectors. The fund also has a relatively high net expense ratio of 0.99%.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.