I recently traveled for the first time in over a year. I took a well-deserved vacation to Cabo San Lucas and let me tell you...it was pretty crazy (but when is Cabo not crazy?).
Post-pandemic travel and how we’ll navigate these fresh new waters has a major impact on numerous local and global economies. And, while the airport was packed when I arrived at 9am for my PCR test, I bet you’re wondering if that means now is the time to invest in the expected post-pandie travel boom.
Let me break down my predictions for you in terms of travel stocks in 2021 and what you should be prepared for.
What Does Travel Have to Do With Stocks?
It’s all about supply and demand, man. There’s going to be a lot of need for travel in the post-pandemic Western world, particularly in countries where vaccine access is widespread and advancing quickly. So, which stocks should you look out for?
Let’s talk about the short-term plays. These are businesses that have the capacity to rebound somewhat quicker than other businesses. For example, while the airline industry will continue to take a hit for quite a while, companies with business models such as Expedia and TripAdvisor are able to cater to more local travels within the United States and can offer services that don’t rely on a) big ticket purchases or b) long-haul flights.
So, Expedia and TripAdvisor are businesses to look out for. What you want to do is look for businesses that have good, sustainable business models. Booking.com, for example, is trading at 16x revenue and they’ve withstood the test of time even as Airbnb and similar businesses have entered the market and disrupted the scene.
Airbnb as a Case Study for Investing in Travel Stocks in 2021
Let’s take a look at Airbnb. Since March 15th, their stock has gone down about 40%. The lowest price hit about $120 after Q1 earnings reports were released. This caused traders to doubt the effectiveness of Airbnb’s business model. But, you have to take a deeper look at some facts.
For starters, Airbnb occupies a 20% share of the US lodging market and is “bigger than the top five hotel brands combined.” As well, in their recent report, short-term lodging services reported a 39% quarterly increase and 13% year-over-year boost in nights and experiences booked.
With a long track record of success and a pent up demand to travel and explore that’ll have customers jumping to book a night away anywhere, this slump is likely going to be short-term. Stock prices might fluctuate for a while but then balance out before increasing once again.
The key is finding the right moment to enter and buy. Keep watching this stock as travel gets a boost. Follow along as they make their earnings reports public. If their earnings report is low and people get scared, they’ll sell off. But, you know that Airbnb is a good business and investing in it is smart.
The bottom line in times like these: Don’t buy into the emotional hype. Stay calm and understand that investing is a long-term game. You have to be ready to play while waiting out lows like these.
The Golden Rule of Investing During a Downturn
I’ve got one golden rule when it comes to investing in times like these:
Buy good businesses when everybody is losing their mind.
Then, we wait it out and reap the benefits when things level out and their stock goes up. This is why it’s so important to really research businesses you’re thinking of investing in. Look for the combination of a good business and fear that the business is going to bust. The Trade Desk is a great example of this.
Really, what I do when I’m investing in this way is that I’m trying to look about 14 to 18 months into the future and get a feel for what the economic landscape is like. In this case, I’d ask myself what I think will be going on in the travel industry as we move past the biggest hump of the pandemic. I would look at trends in countries where the vaccine rollout of other health measurements have allowed countries to open up. What does their tourism industry look like and what will it look like next summer?
Remember, earnings are when reality meets speculation. Actually, write it down. Because if you’re going to invest in travel stocks in 2021, you’ll want to really research which ones (hint: we’ve given you a few above!) are worth your time and money. Then, be prepared to reap the rewards when your speculation meets reality in a few months.
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