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Stock Strategist

Hotel Stocks We Like

The industry is booming, but a few values remain.

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Hotel investors needed steely resolve to brave the lodging industry's ups and downs over the last five years. From 2000 to 2003 occupancy plummeted by more than 4 percentage points while nightly rates fell 2.5% over the same period. Since then, hotels have rebounded: Occupancy and rate levels are quickly approaching the industry's mid-1990s peak. Stock performance has mimicked these travel trends; bellwether  Marriott International (MAR) lost 40% of its value from August 2001 to February 2003, but has since appreciated by more than 200%. We think growing demand and a limited supply of new rooms should keep the hotel industry healthy, presenting investors with several exciting investment opportunities.

The 9/11 Effect
Travel plummeted after the 9/11 attacks, leaving hotels half empty. The industry's troubles were compounded by high fixed costs--costs that don't fall despite unoccupied rooms. Several companies that were teetering on the edge--like  Lodgian (LGN)--were pushed into bankruptcy. At the time there was concern that terrorism fears and expanded use of video conferencing would create a permanently depressed travel market.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.