No questions exist that the U.S. economy faces significant challenges. Nevertheless, investors may want to consider travel stocks. It sounds counterintuitive, given the numerous headwinds. However, workers appear eager to burn their paid time off (PTO) as experiential expenditures take priority.
On the surface, targeting travel stocks seems risky, if not outright reckless. Yes, the labor market has generally printed robust figures over the past several months, with the May report clocking in at 272,000 jobs, well above economists’ projections for 182,000. On the other hand, the nuances of various economic reports suggest that not all is well.
As TipRanks reporter Paul Hoffman stated, there appears to be a contrast between economic indicators and public sentiment. Amid robust job growth, other data points have warned about soft income and spending data. In addition, last month saw worse-than-expected manufacturing sentiment. Further, companies have warned about an erosion in consumer spending.
Nevertheless, even with the headwinds, consumers are opening their wallets for their vacations and experience-related events, according to a Deloitte research paper. Given this prioritization, certain travel stocks stand out as possible upside opportunities. From airliners to lodging specialists, the sector has witnessed solid growth – and there’s no indication that this sentiment is fading.
With that, below are two travel stocks that can ride this bull wave within the broader consumer market.
Uber Technologies (UBER)
Effectively pioneering the ride-sharing industry and bringing to the forefront the concept of the sharing economy, Uber Technologies (NYSE:UBER) ranks among the top travel stocks. Technically falling under the application software sector, Uber connects buyers with sellers of various consumer services. Initially, the company focused on mobility. However, in recent years, the company has evolved into food deliveries and even logistics.
Fundamentally, what makes UBER a standout entity among travel stocks is that core interactions are handled via the company’s app. In this way, users don’t need to know the language of the countries that they’re visiting. That’s a very powerful tool because American tourists are easy victims of unscrupulous taxi drivers.
With Uber, all the financial and administrative details are handled on the app. If any funny stuff happens (either originating from the driver or the service user), the offending party can be booted from the platform. Thus, a natural, capitalistic incentive exists for platform users to be on their best behavior. It’s one of the beautiful aspects of UBER stock.
On an investment note, Uber seems like an attractive idea because of its projected growth. According to Spherical Insights, the global ridesharing market could expand from $91.63 billion in 2023 to $418.53 billion by 2033, implying a compound annual growth rate (CAGR) of 16.4%.
For Uber, analysts believe its sales can rise from $37.28 billion last year to $73.68 billion in 2028, implying a CAGR of 14.6%. That’s just a hair off the sector’s growth rate. However, because Uber is an established enterprise, the projected magnitude of expansion is impressive.
Right now, UBER stock trades at 3.84x trailing-year sales. Against the application software sector’s average multiple of 3.79x, the multiple is very attractive. Few companies have the power and presence of Uber. Therefore, it appears to be well worth its premium.
Is UBER Stock a Buy, According to Analysts?
Turning to Wall Street, UBER stock has a Strong Buy consensus rating based on 29 Buys, one Hold, and zero Sell ratings. The average UBER price target is $87.86, implying 23.1% upside potential.
Visa (V)
Obviously, Visa (NYSE:V) isn’t what you call a pure-play idea among travel stocks. Nevertheless, given the underlying fundamentals of the current travel sector environment, it deserves careful consideration. As you know, Visa is a powerhouse in the credit services industry of the financial sector. Its credit card network is accepted in hundreds of countries, making international vacations easier to facilitate.
For American tourists, Visa is a particularly powerful tool. Yes, there are broader concerns about the magnitude of debt that’s been wracked up on plastic. As well, rising delinquency rates don’t particularly bode well for confidence. However, it’s also fair to point out that the U.S. dollar is strong relative to many other global currencies. Basically, the greenback goes further in foreign lands, making Visa an attractive idea among travel stocks.
Outside of a few notable exceptions, countries have embraced plastic and digital payment solutions over physical cash. For tourists, carrying credit cards offers added security. Underlying payment specialists can monitor cards for fraudulent activities. Further, if cards are lost or stolen, resolutions can occur relatively quickly.
Enticingly, Mordor Intelligence forecasts that the credit card market may expand from $14.31 trillion in 2024 to $17.14 trillion by 2029. If so, that would imply a CAGR of 3.67%. In Visa’s case, revenue may rise from 2023’s print of $32.65 billion to $48.36 billion by 2027. That would come out to a CAGR of 10.32%.
At the moment, V stock trades at 16.58x trailing-year revenue. Admittedly, that’s very hot compared to the underlying credit services sector, which features an average revenue multiple of 1.88x. However, during the first quarter of this year, the multiple ran up to 17.33x, so it’s not relatively discounted. Combined with the expected business growth, Visa represents one of the travel stocks to consider.
Is Visa Stock a Buy, According to Analysts?
Turning to Wall Street, V stock has a Strong Buy consensus rating based on 20 Buys, four Holds, and zero Sell ratings. The average V stock price target is $316.40, implying 15.7% upside potential.
Conclusion: Both UBER and V May Rise on Strong Travel Sentiment
Despite challenges facing the consumer economy, workers are continuing to prioritize traveling and broader experiential events. Fundamentally, this dynamic bodes well for both Uber and Visa. For the former enterprise, the underlying platform’s ability to facilitate relatively friction-free mobility helps boost its still-impressive growth. For the latter, Visa’s security measures and strong dollar value compared to foreign currencies could boost demand.
