By: Mark Jones
Considering we've been recovering from a recession for several years, the performance of some participants in the lodging sector has been very impressive. The name Holiday Inn doesn't quite ring the same bell as popular stocks such as Facebook (FB) or Apple (AAPL), but who would have guessed that shares of Intercontinental Hotels Group (IHG), the U.K.-based operator of this hotel brand among several others, would now be up over 350% from their 2008 lows. That's a 46% return per year. It's even competitive with Apple's 470% return off of recession lows. It goes to show that you don't need to invest in the hottest stock to make some serious returns.
In addition to the Holiday Inn brand, Intercontinental Hotels Group also operates Holiday Inn Express, Staybridge Suites, Crown Plaza and InterContinental. In 2011, the company had almost 4,500 hotels operating under its umbrella, which provided close to 660,000 hotel rooms. About half of its revenue and 80% of its profit came from the U.S. in 2011, with Europe being the second biggest contributor to the company's top and bottom lines. Revenue was up 4.7% from 2010-2011, and if 4Q 2012 estimates are met, the company will grow revenue from $1.01 billion to over $1.3 billion. The stock currently trades at a forward P/E ratio of 18.8 and has a beta of 1.51.
Hyatt Hotels Corporation (H) manages and franchises hotel and resort brands such as Andaz, Hyatt Regency, Hyatt Place, Hyatt Vacation Club, and others. Hyatt currently trades at a forward P/E ratio of 53.43 and have a beta of 1.27. Shares now trade over 48% from 2009 lows. In 2011, Hyatt reported 473 hotels with over 134,000 rooms, which the company either operated or franchised. Steven Cohen's hedge fund, SAC Capital Advisors, held 2.3 million shares according to SAC's latest 13F filing. This placed Hyatt among the fund's top 50 positions.
Starwood Hotels & Resorts Worldwide, Inc. (HOT) operates luxury and upscale full service hotels, select hotels, and extended stay hotels and resorts under brands such as: Four Points, Aloft, St. Regis, and Le Méridien. Starwood's revenue was up 7.6% in 2010 and 10.8% in 2011. Based on current estimates, the company is expected to provide revenue growth of nearly 12% in 2012. Stock prices hit under $11 per share in 2008 and currently trade over 450% higher above $60 per share. Out of the last 17 quarters, the company has beat analyst estimates every time, often crushing projections. This is a personal favorite, and I will be looking to add the company to my portfolio in the near future. Mark Gallogly's fund, Centerbridge Partners, keeps Starwood Hotels as one of his top 5 holdings, with over 8.5% of his fund allocated to this stock.
Home Inns & Hotels Management, Inc. (HMIN) is a Chinese hotel chain that manages economy hotels under the Home Inn, Motel 168, and Yitel brands, all of which are operated in China. Sales have grown at a compounded rate of 38.7% from 2007-2011, while net income grew at a rate of 71.5% over the same period. HMIN's stock hit a low of $7 in 2008 and is currently up over 330% trading around $30 per share. I really like investing in well-managed foreign companies because it's a great way to reduce the overall beta of your portfolio. Exposure to companies that generate income in a foreign currency isn't always a sure path to higher returns, but it has been proven to lower the overall beta of your portfolio.
Last up for discussion is Marriott International, Inc. (MAR). Marriott operates and franchises popular hotels such as Marriott Hotels & Resorts, JW Marriott, Ritz-Carlton hotels, Fairfield Inn & Suites, and several other brands. Tom Gayner kept around 1.3 million shares in his fund's portfolio according to its most recent 13F filing. Markel Gayner Asset Management returned 11.1% per year on average between 2000-2009 (see Markel's top holdings). The stock is up over 200% since 2009, has a beta of 1.35, and returns an annual dividend yield of 1.3%.
You can see that investors don't need a hot news-driven stock to make double-digit annual returns over the years, and lodging is a great place to start looking.