Traveling Gains: Hotels and Cruises

03/13/2015 7:00 am EST

Focus: STOCKS

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

In his latest stock screens for Cabot Top Ten Trader, growth stock expert Mike Cintolo sees upside opportunity in a pair of travel and leisure outfits; a hotel chain and a cruise line operator.

In the world of hotel mega-chains, Hilton (HLT) ranks #2 by size (behind InterContinental and ahead of Marriott). But Hilton ranks first in employee happiness, and in the hospitality business, happy employees are a key asset.

Hilton has more than 4,000 hotels in more than 90 countries and is building new hotels constantly; it added more than 36,000 rooms in 2014 and has approximately 230,000 rooms in development.

Revenues have grown at single-digit rates for years and show no prospect of accelerating, but earnings are booming and investors have noticed.

Fourth quarter and full-year earnings exceeded analysts’ expectations, thanks in part to increased business travel in the US. The company’s first quarter forecast was a tad conservative because of concern about the strong dollar. Long-term, however, trends are excellent.

The fourth quarter report sparked a surge of buying that drove the stock from $26.5 to $29 and the reaction that followed saw the stock dip below $29, where it easily found buyers. We think you can initiate positions here, with a stop below $26.50.

Norwegian Cruise Lines (NCLH) is one of the major cruise lines in the world. The big idea here is not just the tailwinds helping the overall industry, lower fuel prices are sure to help going forward, as will an accelerating US economy and job market.

There has also been good news from the firm’s late-2014 acquisition of Prestige Cruise Holdings (which operates higher-end brands Regency and Seven Seas), with $50 million of synergies identified.

Sales and earnings have been clipping along nicely during the past few years and analysts see that continuing, with the bottom line rising 24% this year and 31% in 2016.

Obviously, cruise lines are as cyclical as they come and any major economic hiccup can send the stocks into a tailspin. But today, conditions are bullish, so Norwegian should continue to do well in the quarters ahead.

The Ebola scare brought shares down toward $30, right where they were in February 2013. But since then, NCLH has acted very well.  We think buying around here or on dips makes for a good risk-reward trade.

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