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Investing in hotel stocks

Hotel stocks can perform well in a strong economy, but changes in travel patterns can mean uneasy nights for investors.

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Investing in hotel stocks can be a lucrative venture, especially under a healthy economy. But the COVID-19 pandemic has put a major strain on the hotel industry and the wider hospitality sector.

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.

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.

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. And we saw it amid 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 hotel industry and its influx of people came to a halt. And the hotel industry suffered. That shock spread to the people who kept the hotel industry running as they lost their jobs or saw their hotels shut down.

And the future is uncertain. A study by the American Hotel & Lodging Association (AHLA) conducted in November 2020 projected that 71% of hotels won’t make it another six months without further government assistance. A survey of its members found 59% said they risk foreclosure on their hotels as they struggle to make mortgage payments.

The hotel industry is also negatively being affected by external industries that contribute to profits as attractions are shutting down or reducing capacity across the world. And with fears of the virus looming, many people are simply hesitant to travel or check into hotels. This has also delivered a blow to airline stocks.

The hotel occupancy rate in Europe in May 2020 was 13.3%, an 82.3% drop compared to the previous year.

Meanwhile, politicians continue debating a second potential stimulus package to help businesses and workers following the CARES Act.

Hotel stocks

If you’re interested in hotel stocks, you have plenty of options. Select a company to learn more about what they do and how their stock performs, including market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield. While this list includes a selection of the most well-known and popular stocks, it doesn't include every stock available.

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 (JETS)
  • Invesco Dynamic Leisure and Entertainment ETF (PEJ)
  • ETFMG Travel Tech ETF (AWAY)
  • VanEck Vectors Gaming ETF (BJK)

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.

Name Product Stock trade fee Asset types Option trade fee Annual fee
Sofi Invest
$0
Stocks, ETFs, Cryptocurrency
N/A
0%
A free way to invest in stocks, ETFs and crypto.
Robinhood
$0
Stocks, Options, ETFs, Cryptocurrency
$0
0%
Make unlimited commission-free trades in stocks, funds, and options with Robinhood Financial.
Moomoo
$0 for US stocks
Stocks, Options, ETFs
$0
Trade stocks on the US, Hong Kong, Shanghai and Shenzhen markets.
TD Ameritrade
$0
or $25 broker-assisted
Stocks
$0 + $0.65/contract,
or $25 broker-assisted
TD Ameritrade features $0 commission for online stock, but watch out for high short-term ETF and broker-assisted trading fees.
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Compare up to 4 providers

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Bottom line

The hotel industry is facing major challenges during the COVID-19 pandemic. With many hotels fearing closure and massive layoffs ahead without further government assistance, the state of the industry may seem bleak. But that doesn’t mean it won’t recover. With vaccines in development and economies reopening, the hotel industry could bounce back along with other sectors that affect its numbers. Investing now may reap profits down the road. If you’re ready to invest, compare your trading platforms.

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