Travel is rebounding across the U.S. After two difficult years during the Covid-19 crisis, record air travel was predicted during the recent Fourth of July weekend.In fact, hotel occupancy rates are back near or above pre-pandemic levels.
This is great news for travel stocks that were previously decimated a few short years ago. Hotels were forced to close, aircraft grounded, and cruise ships moored in shipyards around the world. Many travel stocks are now rebounding after plunging 80% or more in 2020 and 2021.
The good news for investors is that many travel stocks are in early-stage recovery, appearing undervalued at current levels. With more runway ahead, investors are ceasing the chance to diversify their portfolios with some signature travel names. The economy continues to hold up, and travel demand shows no signs of cooling anytime soon.
Read on for the three most undervalued travel stocks to buy now in July 2023.
Airbnb (ABNB)
Shares of the homestay and short-term rental company Airbnb (NASDAQ:ABNB) continue to be volatile.
The company’s stock plummeted 14% in a single trading session in late May after management announced weaker-than-expected forward guidance. It also provided a cautious outlook for the just completed second quarter.
True, Airbnb said it had a strong start this year. But the company warned that Q2 comparisons would be difficult, forecasting revenue of $2.35 billion to $2.45 billion. Analysts were expecting revenue of $2.42 billion.
However, despite this, ABNB stock has managed to stage a strong comeback overall, rising 73% year to date. Still, the company’s share price remains 30% below the all-time high it had reached following its initial public offering (IPO) in December 2020.
This implies that an opportunity for investors to take a position in Airbnb and ride the share price to long-term gains. Also, despite the weak guidance, Airbnb posted results for Q1 of this year that crushed estimates on both the top and bottom lines.
Delta Air Lines (DAL)
Now is a great time for investors to take a position in Delta Air Lines (NYSE:DAL).
In mid-June, the carrier reinstated its quarterly dividend that was suspended in March 2020 as the Covid-19 pandemic ravaged the aviation sector.
Going forward, Delta Air Lines will pay stockholders 10 cents a share each quarter. The first new dividend payment will be made on August 7. Previously, Delta and other U.S.-based airlines suspended their dividend payments as a condition of receiving $50 billion in federal financial aid during the pandemic.
Delta and other carriers have been reporting record revenues over the past several quarters due to a surge in air travel. Demand continues to be strong this summer. As a result, DAL stock has been rising steadily, having gained nearly 50% so far in 2023.
However, even with the big move higher, DAL stock is trading 7% lower than where it was at five years ago. With a recovery still in the works, now is the time for investors to buy Delta stock.
MGM Resorts (MGM)
Another stock that has been on a tear this year but still looks undervalued is MGM Resorts (NYSE:MGM).
The company, which operates prestige casinos and hotels from Las Vegas to Atlantic City, has seen its share price vault 50% higher since January. Yet the stock is currently trading at only 10 times expected earnings, implying a low valuation compared to most other stocks. The average price-earnings (P/E) ratio among S&P 500 stocks is currently 23 times future earnings.
Like most travel-related stocks, MGM shares got bludgeoned during the pandemic as the majority of its properties were either forced to close or operate at reduced capacity. Consequently, MGM stock is still trading 47% below its all-time high.
With the current valuation low and its share price on an upswing, investors would be smart to take a position. Plus, MGM has reported that the occupancy rate at its hotels and casinos is now back above 90% and near pre-pandemic levels.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
