Many reopening stocks are fully priced


The worst-hit stocks since the early days of the pandemic were the travel and leisure sectors, where stocks of hotels, casinos, restaurants, airlines, cruise lines and live site operators had the biggest hit percentages, hands down.

A year and a month later, many of them have not only returned to their pre-pandemic levels, but they have also reached new all-time highs against a backdrop of much weaker commercial activity. The main catalysts behind the Selective rallies are investor euphoria over the reopening of the economy, massive stimulus checks and loans, lines of credit to consumers and businesses, and market share gains by businesses at the expense of hundreds of thousands of small business bankruptcies.

The most impressive gains came from restaurant and hotel stocks. A few cases that illustrate what I consider an overbought condition follow.

Darden Restaurants Inc. (DRI), owner of Olive Garden and Longhorn Steak House, was trading at $ 120 a share in February 2020 and is trading today at $ 148.

Brinker International Inc. (EAT), owner of Chili’s Grill & Bar, was trading at $ 45 before the pandemic and is now trading at $ 70.

Hilton Worldwide Holdings Inc. (HLT), which is trading at $ 110 ahead of the pandemic, is now at $ 125.

TripAdvisor Inc. (TRIP), priced at $ 30 before the pandemic, is trading today at $ 55.

Expedia Group Inc. (EXPE), sold for $ 110 last year, is trading today at $ 175.

Southwest Airlines Inc. (LUV), which trades at $ 55 before the pandemic, is now at $ 63.

These sky-high gains come at a time when oil prices have doubled, pushing up jet fuel prices. Business travel budgets have been cut by more than 50%. Food has skyrocketed and put pressure on restaurants. Seating at most establishments is still limited to 50% occupancy rates, and travel bookings are far from reaching their numbers before February 2020.

I just don’t see the valuations of these and others in the same sectors rising much more. However, there appears to be good value left in Carnival Cruise Lines Inc. (CCL), Norwegian Cruise Lines Inc. (NCLH), United Air Lines Holdings Group Inc. (UAL) and Saber Corp. (SABR).

It just seems like there’s a classic case of buying the rumor and selling the news looming. Investors should be very careful not to invest in travel and leisure stocks after much of the potential future prosperity of this large industry has arguably been incorporated into many of these stocks.

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