If they haven’t already, mobs of Chinese tourists will soon be visiting a city near you, spending fortunes in the process. Find out who’s rolling out the red carpet to welcome these generous travelers…
For investors, now’s the perfect time to get into vacation mode, but not because business is slowing for the holidays and it’s time to pack your bags and head south — precisely the opposite.
Rather, speculators should be bullishly adding another industry to their portfolio if they haven’t already done so: tourism.
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Of course, the reason that casinos are on a tear is because of the fast-growing middle class in China with plenty of disposable income and a penchant for traveling and gambling.
In a report by the UN World Tourism Organization (UNWTO), 83 million Chinese went on international trips in 2012 and spent a record US$102 billion while they were abroad.
This number exceeds second place Americans by a whopping $20 billion.
The Asia Pacific region accounts for over 90% of Chinese trips annually, with the Special Administrative Regions (SARs) of Hong Kong and gambling mecca Macau taking the lion’s share.
But casinos aren’t the only businesses that are reaping the benefits of these big spenders.
Considering all the components that are needed to create a traveler’s holiday experience from departure to arrival and back…there is plenty of wealth to go around.
What’s The Big Deal?
With the world being a proverbial oyster, no destination is really off limits to the Chinese. So they definitely need help with narrowing their search.
That’s why online travel booking sites have exploded over the past few years.
Sure, there are still plenty of brick-and-mortar travel agencies to help with vacation planning, but self-serve websites have continued to grow in popularity around the world – forcing knowledgeable agents to take the back seat behind the best deals online.
So for those familiar with Expedia (NASDAQ:EXPE) or Priceline (NASDAQ:PCLN), it’s worth taking a serious look into China’s equivalent Ctrip.com (NASDAQ:CTRP).
Top Chinese Travel Stocks:
Ctrip.com is the largest travel service provider in China, helping customers find the best rates for flights, hotels, vacation package, tour packages, and even train rides.
In the past year, they’ve seen tremendous growth in business by way of their successful mobile booking applications, and this is expected to continue well into 2014.
Ctrip currently has a market cap of approximately $6.4 billion and EPS of $1.04. It has a trailing P/E ratio of 47.30 and forward ratio of 44.94.
The company hit a high of $61 in October and has since pulled back. The reason for this is that management is anticipating a slowdown in travel for the fourth quarter.
As far as international travel is concerned, the reduction will likely be due to the upcoming Chinese New Year season that commences on January 31st, where families are either expected to stay at home to celebrate or only make short haul trips domestically.
Increased Chinese competition from Expedia affiliate eLong (NASDAQ:LONG), and newly offered Qunar (NASDAQ:QUNR) has also put pressure on Ctrip of late.
Speaking of Expedia, they are similarly sized with a capitalization of $8.2 billion and EPS of $1.04. Expedia’s solid Q3 revenue growth of 17% year over year is a little under half of the even more impressive 31% clip that Ctrip generated in the same span.
Expedia management anticipates a steady decline in revenue per room night moving forward as they expand their hotel partners and implement bigger discounts to try and capture greater market share for the long term.
As such, while they have a strong trailing ratio of 62.57, analysts have gauged a lower forward multiple of 26.02.
Comparatively, Priceline’s tight float of just 51 million shares gives them a market cap of $61.1 billion and EPS of $34.50, while registering a trailing P/E of 34.46 and forward P/E of 30.29.
Priceline just appointed a new CEO in Darren Huston who was previously the CEO of Priceline affiliate site, Booking.com.
Huston is considered global-minded and is expected to broaden the company’s push into key markets in Asia and Latin America.
Priceline also currently has a travel partnership with Ctrip, which could help with cross promotion.
Then The Fun Begins
With sites like Ctrip able to generate huge dollars from its Chinese customers, its suppliers will also stand to benefit.
In other words, investors should also consider what other stocks are related to travel, including airlines and accommodations.
Again, inside the next two months, any increase in travel activities will potentially take place within China’s borders as opposed to abroad.
Therefore, industries with exposure to domestic travelers will see a strong boost heading into February as Chinese New Year celebrations get into full swing.
China Southern Airlines Co. Ltd. (NYSE:ZNH) and China Lodging Group Ltd. (NASDAQ:HTHT) are also companies to consider.
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