Hotel REIT stocks get a rush of Quant rating warnings in November

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• Along with a slump in hotel REITs during the past six months, SA Quant ratings are flagging more stocks at risk of performing badly for a variety of reasons.
• Since the beginning of November, nine lodging stocks out of a hypothetical portfolio 14 received such warnings. Two other stocks had red flags before that.
• Sotherly Hotels (NASDAQ:SOHO) received a Very Bearish rating on Dec. 2 due to inferior profitability and decelerating momentum when compared with other real estate stocks.
• On Dec. 1, Park Hotels & Resorts (NYSE:PK) sank into Very Bearish territory on inferior profitability and declining growth.
• And on Nov. 26, Xenia Hotels & Resorts (NYSE:XHR) was flagged for its declining growth and indicators that it's overpriced compared with other real estate stocks.
• Others with warnings of performing badly include Service Properties Trust (NASDAQ:SVC), DiamondRock Hospitality (NYSE:DRH), and Hersha Hospitality (NYSE:HT).
• Of the 14-stock portfolio, Apple Hospitality (NYSE:APLE) and Summit Hotel Properties (NYSE:INN) have the best Quant ratings at Neutral.
• With the COVID pandemic persisting and new variants emerging, hotel sector stocks have been hurting. In the past month alone, the S&P Composite 1500 Hotel & Resort REITs Index (orange line) dropped 12%, more than the S&P 500's 1.0% dip and the S&P 1500 Diversified REITs Index's (magenta) 5.1% decline. Of the recent SA Very Bearish warnings, SOHO actually outperformed, coming in at breakeven, while XHR fell 13% and PK sank 14%, as seen in the graph below.
• SA contributor True Orion sees Apple Hospitality (APLE) bearing fruit or patient investors

Comments

[cachinga]

I traveled by car in May and September this year. If you weren't in a hotel room by 7 pm there wasn't one available! People are traveling and my friends are all visiting friends/family by car or flying these coming holidays. Covid is not a consideration.

[Steven Cress]

@cachinga I appreciate you reading the article. There are stocks in the Casino industry and hotel industry and consumer sector that are ranked highly with Very Bullish recommendations. They can be found on these screens:

seekingalpha.com/...

seekingalpha.com/...

seekingalpha.com/...

I hope they are useful.

[cachinga]

@Steven Cress Long GLPI and sadly APLE. Thank for the references.

[darthur1]

So what are your top travel choices? I agree SA’s quant ratings can only mean it’s time to buy more.

[Steven Cress]

@darthur1 Here is a link to our quant ranking for the Hotels, Resorts, and Cruise lines industry. The quant ratings simply measure a stock or REITs metrics against its sector or asset class. The grades and directional recommendations are data-driven and show the best metrics and worst metrics.

[darthur1]

@Steven Cress against which other sectors? Reits as a whole? It says above the best rating for hotel is neutral. Obviously the hotels are suffering, but not because of intrinsic problems because of an external one, Covid-19. So what happens when the Covid threat abates and the hotel stocks soar? Your Quant rating will switch right before that happens? Was it pointing positive on November 6, 2020 before news of the vaccine was announced? If not, then what value does a headline like this have other than sensationalism?

[Steven Cress]

@darthur1 Quant can not predict Covid, or a cargo ship blocking the Suez Canal, or Russia invading the Crimea. Quant is a data-driven process using mathematics and statistics. What it does do is compare fundamentals and investment data of Stocks, REITs, or ETF to similar securities with the use of historical financial data and forward consensus estimates from professional analysts. With the use of grades (scores) it instantly identifies metrics that are strong and weak compared to the sector median. The proven quant track record is very strong and very long. Here are links that exhibit:
Very Bullish Ratings: seekingalpha.com/...
Very Bearish Ratings: seekingalpha.com/...

Dividend Safety Grades: seekingalpha.com/...

[GuyRien1]

Does the quant rating factor liquidity and cash on hand.

That to me is a key metric.

[Steven Cress]

@GuyRien1 Yes. You will find these on the profitability page. Here is a link as an example:
seekingalpha.com/...
Liquidity and size are also very important factors.

[GuyRien1]

@Steven Cress Thanks, but on that page I don't see any mention of cash on hand or liquidity. Normally, I get this from the transcripts of the CCs but it would be great if they were collected in one place.

[Steven Cress]

@GuyRien1 Cash is the 8th metric down. Liquidity is not on that page, but it is part of the algo. You can find volume metrics on the symbol page.

[Jimmy_Newyork]

Seeking Alpha can't even get their mobile phone app to work properly and they except us / you to put credence into their Quant ratings? That's funny!!!

[kmetviner]

This is the kind of news that creates wealth for the courageous investor. These companies, in general, have cleaned up their finances during the pandemic and were ready to score big time before the current mania hit.

[Steven Cress]

@kmetviner This really data driven. It is not based on subjective opinion or hypothetical scenarios. The quant ratings simply measure a stock or REITs metrics and underlying against the same metrics in its sector or asset class. The grades and directional recommendations instantly characterize the strength or weakness of the metric compared to like for like. Some of the stocks in the sector or asset class are Very Bullish based on strong fundamental factors and others are Very Bearish because they possess weak fundamental factors.

[ckarabin]

Does anyone really think that travel will never return? Travel is in your blood if you do it, especially people who can easily afford it. People may be cautious about it for a while, but eventually we'll get used to the existance of COVID and learn to live our lives despite it. The desire to see new and different things in the world and unique and exciting environments is not going away anytime soon. Buy these stocks when they are on sale and you'll do well if you have patience.

[BlindBillionaire]

@ckarabin I agree totally. The shortsighted idea that this COVID situation will never end is just absurd. I'm primed to make a killing on one of these stock that I have owned for years. People are chomping at the bit to travel again including myself. Meanwhile if you want to sell your stock right now and drive the price down go right ahead. I'll be buying.

[ckarabin]

@BlindBillionaire Wealthy people travel, that's what they do. They want to experience, see, hear, enjoy new experiences, pamper themselves and all the other things that only travel can provide. Ludicrous to think the people with money will just sit around at home forever!

[King Rat]

@ckarabin
I misread your post twice and got confused. The third time was a charm. I totally agree.
Travel will come back. In the mean time, I am sitting on a lot of cash and after having sold EPR around $50, HT at $11 or $12, and PK at $22, I really have to prepare myself mentally to get contrarian and buying them back.

Quant analysis works to demonstrate measurements of trends of divergence and convergence, but ultimately what diverges will converge.
In other words, using such techniques, you have to be early or wait for the next signal.

The hotel and general hospitality REITs that have suffered lately were already undervalued in the middle of an overvalued market.

European governments are crying for quarterly vaccine boosters while those in the midst of the new Corona variant such as those in South Africa are calling it as mild as an ordinary cold or as a storm in a teacup.

Officials are attempting to publicly coverup their hyperbolic overreaction with more hyperbole to at least get the public to sympathize with them instead of demanding their heads get the King Leer treatment. The result is public unrest of the public pit against itself. If the public just thought rationally for a while, did the math on the virus, and applied it to their lives, even the middle class would be traveling and staying in hotels by now.