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Investing in hotel stocks

Shifting travel patterns have thrown this industry into flux — a potentially lucrative opportunity for investors.

Hotel stocks tend to perform well in bull markets, but the recent COVID-19 pandemic put a major strain on the hotel industry and hospitality sector. As vaccines continue to roll out, investors have the opportunity to get in on hotel stocks as they begin their slow climb to recovery.

What are hotel stocks?

The hotel industry includes motels, hotels and other short-term lodging facilities that span the globe. Hotel investments typically fall into two categories. You can invest in C-corporation hotels. These companies focus on the management and marketing of hotels rather than the real estate or physical structure.

On the other hand, you have hotel real estate investment trusts (REITs). These are companies that own the real estate that houses hotels. Hotel REITs generally focus on the management of real estate and the acquisition of more.

Hotel stocks and hotel REITs are listed on major exchanges. You can purchase individual shares of either. Both are part of the wider hospitality industry.

Investing in real estate

Why invest in hotel stocks?

Whether you’re traveling for business or pleasure, you’ll probably need a hotel. These can range from simple motels to high-end hotels and resorts. Politicians and diplomats must travel the world. The biggest performers need to entertain their fans across the globe. And they need a place to sleep — and they’re probably not doing this cheaply. So investors can see hotel stocks as lucrative investments over the longer term.

The movement of people and services is essential to any strong economy, which is why hotels tend to perform well in bull markets.

The COVID-19 pandemic had a negative impact on the hospitality sector, but many stocks in this category — including Hilton Worldwide, Marriot International and MGM Resorts International — have already begun their recovery: a promising indicator for the industry.

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Risks of investing in hotels

The hotel industry is susceptible to changes in travel patterns and the performance of surrounding attractions. Changes here can lead to major volatility. We saw this in action during the COVID-19 pandemic and its economic fallout.

As social distancing rules and travel restrictions were put into place to quell the virus, many people stopped traveling. Attractions that supported the hospitality sector and its influx of people came to a halt. And the industry suffered. The hotel occupancy rate in Europe in May 2020 was 13.3%, which was 82.3% lower than the previous year. In Canada, the 2020 hotel occupancy rate was 33%, a 49% drop from 2019.

The coronavirus pandemic demonstrated that hotel stocks are not immune to risk. As the vaccine rollout continues to ramp up around the globe, the forecast is bright for hotel stocks — but there’s no guaranteed timeline of how long this sector will take to fully recover.

Hotel stocks

If you’re interested in hotel stocks, you have plenty of options.

  • Marriott International, Inc. (NasdaqGS: MAR)
  • Hilton Worldwide Holdings Inc. (NYSE: HLT)
  • Hyatt Hotels Corporation (NYSE: H)
  • InterContinental Hotels Group PLC (NYSE: IHG)
  • Wyndham Hotels & Resorts, Inc. (NYSE: WH)
  • Choice Hotels International, Inc. (NYSE: CHH)
  • Park Hotels & Resorts Inc. (NYSE: PK)
  • Starwood Property Trust, Inc. (NYSE: STWD)
  • Allied Hotel Properties Inc. (TSXV: AHP)
  • Lakeview Hotel Investment Corp. (TSXV: LHR)

What ETFs track the hotel category?

You can also invest in a bundle of stocks by purchasing exchange-traded funds (ETFs). ETFs are diversified baskets of stocks that typically track a specific index. The ones that invest in hotel stocks are also built with stocks from companies in the wider travel and leisure industry. This includes airline stocks and cruise line stocks. Here are some examples of ETFs that invest in this sector:

  • U.S. Global Jets ETF (NYSEArca: JETS)
  • ETFMG Travel Tech ETF (NYSEArca: AWAY)
  • Harvest Travel & Leisure Index ETF Class A units (TSX: TRVL)
  • VanEck Vectors Gaming ETF (NasdaqGS: BJK)
  • Invesco Dynamic Leisure and Entertainment ETF (NYSEArca: PEJ)

A beginner’s guide to exchange traded funds (ETFs)

Compare trading platforms

Before you begin buying hotel stocks, you’ll need a brokerage account. These can vary across platforms based on fees, investment minimums, types of securities and more. Compare your options.

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Bottom line

The hotel industry faced major challenges during the COVID-19 pandemic and for many months, the state of the industry looked bleak. But as vaccine rollout continues to gain momentum, the future looks promising for this sector. Investing now could result in profitability down the road. If you’re ready to invest, compare your trading platforms.

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