Top Three Undervalued Travel Stocks

06/08/2016 8:00 am EST

Focus: STOCKS

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Based on S&P trends, economic growth and the proliferation of easily identifiable undervalued growth stocks, I remain bullish on US stock markets, asserts Crista Huff, editor of Cabot Undervalued Stocks Advisor. Here, she reviews a trio of travel stocks.

Delta Air Lines (DAL) - a holding in our growth portfolio - recently announced dividend and buyback news.

The company will increase its annual dividend during the third quarter of 2016 from 54 cents per share to 81 cents. The new yield will be 1.9%.

In addition, Delta is actively buying back stock and will complete the remaining $3 billion of its current repurchase authorization by May 2017.

DAL remains undervalued based on both 2016 and 2017 earnings expectations. Delta's price chart shows distinctly more strength than charts of its key competitors.

There's room for traders to potentially earn a 7% to 21% capital gain this year. Depending on broader market strength, DAL could reach $46 to $52 this year.

Royal Caribbean Cruises (RCL) - also a holding in our growth portfolio -
offers investors strong earnings growth, a low P/E, a 1.9% dividend yield, big dividend increases and share repurchases.

Wall Street research is uncovering a problem with cruise pricing in China. While that market there remains growing and profitable, any pricing problem will lead to a drop in earnings estimates.

In tandem with the potentially growing Zika virus problem, investors who own shares in cruise companies should be cautious and use stop-loss orders to protect their downside.

However, the stock is slowly recovering from the winter stock market downturn, currently rising toward short-term upside price resistance at $84.

Your best-case scenario in the coming months is for RCL to return to December's all-time high of $103.40. And by the way, even at that level the stock would still be undervalued based on both 2016 and 2017 earnings expectations

Carnival (CCL) - a holding in our growth & income portfolio - is the largest leisure travel company in the world.

In May, Moody's Investors Service raised its senior unsecured debt rating from Baa1 to A3. This change in outlook resulted from Carnival's rising margins and earnings, and its strong business outlook.

As I mentioned regarding Royal Caribbean, Wall Street research is uncovering a problem with cruise pricing in China and there are potentially growing concerns about the Zika virus.

Meanwhile, CCL had a big run-up in the late winter, then corrected a bit. The stock is extremely undervalued, with a current dividend yield of 2.8%.

I expect it to return to $53, then continue climbing to its 2015 high of $55.77 in the coming months.

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By Crista Huff, Editor of Cabot Undervalued Stocks Advisor

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