At this crisis point in history - what could possibly create these rare and extraordinary gains?

An Arizona multi-millionaire's revolutionary initiative is 
helping average Americans  find quick and lasting stock market success.

Since the Coronavirus came into our lives this slice of the stock market has given ordinary people the chance to multiply their money by 96% in 21 days on JP Morgan.

Stocks  | March 3, 2020

The stock market is in a correction, but travel-related stocks are in a bear market. Things happened incredibly fast last week, and it feels strange to say it this early into recent stock declines, but it may be time to buy travel stocks. Investors, at least, should start looking for value in the beaten-up space.

The S&P 500 recently entered correction territory—defined as a 10% drop from highs—and it was the fastest the market had ever corrected from an all-time high, according to Dow Jones Market Data.

The S&P 500 dropped 12.8% for the week and is down 14% from its highs. The comparable numbers for the Dow Jones Industrial Average are 12.4% and 14.1%, respectively.

Travel stocks have been, understandably, hit harder than the broader market. Investors fear that potential customers will stay at home, hitting 2020 earnings for the sector.

A basket of a dozen travel-related stocks that Barron’s tracks—including airlines such as Southwest Airlines (ticker: LUV), hotels such as Hilton Worldwide (H), travel agencies such Expedia (EXPE), cruise operators such as Carnival (CCL) and casinos such as Las Vegas Sands (LVS)—are down 22% year to date and 28% from their 52-week highs, on average.

That is bear-market territory. A bear market is usually defined as a 20% drop from the highs. The questions for travel investors are how bad can it get and do recent decline create some opportunities?

Based on history, it looks as if it shouldn’t get that much worse for the sector, from a stock-market perspective. The price-to-sales ratio for travel and leisure stocks is only about 5% higher than lows experienced in 2012.

Price-to-sales is one valuation proxy that can be useful in market downturns. Earnings—and Wall Street earnings estimates—can be volatile in times of market uncertainty. Sales can rise and fall, too, but to a smaller degree. Looking at price-to-sales can help show investors what is normal for a sector. In the case of the leisure and travel stocks Barron’s examined, the recent average price-to-sales ratio is almost 40% below the historical average.

Back in 2012, the European debt crisis was peaking and oil prices average more than $110 for the second consecutive year. Oil prices represent a big costs for airlines and cruise operators and push up travel prices for the public. Global economic growth was hit, falling from 4.3% in 2011 to 3.5% in 2012, according to the International Monetary Fund.

Three months after the sector hit its lows in 2012, stocks had recovered by about 10%. About one year later things were back to normal and shares were up more than 40%.

Total airline traffic—a proxy for travel demand—however, increased in 2012. The European debt crisis didn’t stop people from traveling. Many investors expect demand for travel to fall in 2020.

Looking back, the global financial crisis hit global airline traffic demand in 2009. That is one instance of travel demand falling on an absolute basis. Global airline traffic declined 2.4% that year.

Looking farther back, traffic dropped in 2003 because of factors including SARS, short for severe acute respiratory syndrome, as well as the U.S.-Iraq war. Traffic also declined 3.3% for the full year 2001, due in large part to the terrorist attacks on the World Trade Center in New York City.

The International Air Transport Association, or IATA, thinks the coronavirus outbreak might cause a 13% full-year drop in air travel demand out of Asia. That is big, but for the full year, globally, it would translate into about a 1% decline in traffic. That compares with a 4.2% rise in traffic in 2019.

If the IATA is correct, a 1% coronavirus drop isn’t as severe as during the SARS outbreak. It is, unfortunately, too early to draw a conclusion about coronavirus. The situation is still fluid.

It can be hard to be a contrarian investor, buying when others are selling. And it doesn’t always pay to be early. Factors such as global airline traffic could get worse in 2020 than in prior episodes. Still, it looks as if it is pencil sharpening time for value investors looking at travel stocks. Even if they don’t decide to buy now, looking early makes it easier to buy when things start to look up for the space.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

You might also like

Stocks | January 28

Stocks | January 28

Investing, Stocks | January 27

Investing | January 27