After a challenging fourth quarter in 2018, lodging stocks bounced back along with the broader stock market in January. The Baird/STR Hotel Stock Index, a gauge comprising the 20 largest market capitalization hotel companies publicly traded on U.S. exchanges, jumped 7.8% in the first month of the year.
"More positive investor sentiment was encouraging given the performance uncertainty that came from opening the year with a government shutdown," said Amanda Hite, president and CEO of STR, a company that tracks supply and demand data of the global hotel industry, per the Hospitality Net website.
In 2019, STR sees average daily rate (ADR) and revenue per available room (RevPAR), two of key metrics used by analysts to access the health of the industry, rising 2.6% and 3.2%, respectively. Lodging companies should continue to benefit from healthy consumer spending and wage growth, provided the economy remains resilient.
Those who want to ride the early 2019 momentum in lodging stocks should look at these three issues that are well positioned to capitalize on the industry's favorable conditions. To avoid chasing runaway prices, traders can use medieval Italian mathematician Fibonacci's popular retracement tool, the Fibonacci grid, to find suitable entry levels. Let's look at how it's applied in further detail below.
Marriott International, Inc. (MAR)
Marriott International, Inc. (MAR) operates franchises and manages hotel, residential and timeshare properties across 30 brands. Iconic names in the company's portfolio include Marriott, Courtyard and Sheraton. Marriott, which reports fourth quarter (Q4) earnings after the closing bell on Feb. 28, expects growth in adjusted EBITDA of 7% to 9% over the period. The world's third largest hotel chain by property count has beaten analysts' earnings expectations in the past four consecutive quarters. Marriott stock, with a market cap of $43.86 billion and offering a 1.28% dividend yield, has checked in a year-to-date (YTD) gain of 18.35% as of Feb. 27, 2019.
Marriott's share price broke above a descending channel pattern earlier this month and has continued moving higher. In the short term, the stock looks overextended, with the price sitting 5% above the 200-day simple moving average (SMA) and the relative strength index (RSI) in overbought territory above 70.0. Traders should seek an entry point at $122, where the price finds support from the 50% Fibonacci retracement level and 200-day SMA. Consider booking profits on a test of July and September swing highs at $132.50 and using a three- to five-point stop-loss order to protect trading capital.
Hilton Worldwide Holdings Inc. (HLT)
Founded in 1919, Hilton Worldwide Holdings Inc. (HLT) owns, leases and manages hotels and resorts that target midscale through luxury markets. The McLean, Virginia-based company's Hilton and Hampton brands command roughly 50% of its 894,000 room count. Hilton posted better-than-expected Q4 earnings and remains upbeat about solid revenue growth in the first quarter of this year; it projects the earnings range over the period to be between 56 cents and 61 cents per share. Additionally, Hilton expects full-year RevPAR growth of between 1% and 3%. Analysts have a 12-month price target on the stock at $87.33 – 4.6% above Monday's closing price of $83.49. As of Feb. 27, 2019, Hilton stock, with a $24.45 billion market cap, has a YTD return of 16.28% and pays investors a 0.72% dividend.
Hilton's share price also broke above a descending channel in early February as investors and traders anticipated positive Q4 earnings. The stock gapped above its 200-day SMA after the results and has continued to march higher since. Those who want to play the strong upward momentum should wait for a pullback to $79.50, where the price finds support from the 50% Fibonacci retracement level and 15-day SMA. Traders can use this shorter-period SMA as a trailing stop to let profits run as far as possible. An initial stop order could sit beneath the Feb. 13 earnings gap candlestick low at $77.24.
Hyatt Hotels Corporation (H)
With a market cap of $7.73 billion, Hyatt Hotels Corporation (H) owns, operates and manages luxury hotels and resorts. Some of the company's well-known brands include Hyatt, Hyatt Regency, Park Hyatt, Andaz and Grand Hyatt. The hotel heavyweight recently announced that it has entered into a strategic joint venture with Chinese-operated Homeinns Hotel Group aimed at meeting the evolving travel trends in China by offering a unique premium travel experience in the upper to midscale segment. Trading at $73.08, Hyatt stock pays a 1.02% dividend and is up 8.39% YTD as of Feb. 27, 2019.
Although the company's share price has trended steadily higher since late January, it has underperformed its competitors by nearly 8% since the start of the year. Traders should look to buy the stock on dips back to $72 – an area where the price is likely to find support from the 50% Fibonacci level and a horizontal line that connects a series of 2018 prices. Think about positioning a take-profit order near the late September swing high at $80.85. A stop could sit just beneath this month's low at $69.09.