Many Reopening Stocks Fully Priced
The most beaten-up stocks from the early days of the pandemic were the travel and leisure sectors, where shares of hotel, casino, restaurant, airline, cruise line and live venue operators endured the biggest percentage hits, hands down.
One year and one month later, many of these have not only rallied back to their pre-pandemic levels, but they also have traded to new all-time highs amid much lower levels of business activity. Key catalysts driving the selective rallies feature investor euphoria about the reopening of the economy, massive stimulus checks and loans, lines of credit going to consumers and businesses and market share gains by companies at the expense of hundreds of thousands of small business failures.
The most impressive gains have come from the restaurant and hotel stocks. A few cases that illustrate what I deem an overbought condition follow.
Darden Restaurants Inc. (DRI), owner of Olive Garden and Longhorn Steak House, was trading at $120 a share in February 2020 and today trades at $148.
Brinker International Inc. (EAT), owner of Chili’s Grill & Bar, was trading at $45 pre-pandemic and today trades at $70.
Hilton Worldwide Holdings Inc. (HLT), trading at $110 pre-pandemic, today is at $125.
TripAdvisor Inc. (TRIP), going for $30 pre-pandemic, today trades at $55.
Expedia Group Inc. (EXPE), selling for $110 last year, today trades at $175.
Southwest Airlines Inc. (LUV), trading at $55 pre-pandemic, today is at $63.
These heady gains come at a time when oil prices have doubled, sending jet fuel prices higher. Corporate travel budgets have been slashed by more than 50%. Food commodities have soared and put pressure on eateries. Seating in most establishments is still limited to 50% occupancy levels, and travel bookings are nowhere near their numbers before February 2020.
I just don’t see the valuations for these and some others in the same sectors growing much further. However, there does seem to be good value remaining in Carnival Cruise Lines Inc. (CCL), Norwegian Cruise Lines Inc. (NCLH), United Air Lines Holdings Group Inc. (UAL) and Sabre Corp. (SABR).
There just seems to be a classic case of buying the rumor and selling the news shaping up. Investors should be very careful about piling into travel and leisure stocks after so much of the potential future prosperity of this broad sector arguably has been priced into many of these equities.
