There’s no denying the fact that the first half of 2018 has been rough for the Hotels and Motels industry. Notably, it has witnessed a decline of 11.3% against the S&P 500’s gain of 1.9%. Unfavorable governmental policies, uncertainty in certain markets and RevPAR pressure has negatively impacted the industry players.

Moreover, Donald Trump’s stringent policies on immigration and tourist visas seem to have impelled international visitors to rethink their vacation plans in the United States. Evidently, there has been a continued slowdown in U.S.-bound air travel bookings ever since Trump took charge. Also, online searches by prospective travelers to the United States have declined sharply.

What Lies Ahead for Hotel Industry?

Despite the aforementioned headwinds, stocks in the hotel industry are likely to benefit from rise in demand that supports increases in occupancy and average daily rate (ADR). In fact, the occupancy rate in the United States has touched the highest level in 30 years. In first-quarter 2018, the industry witnessed a better-than-expected increase in demand, with revenue per available room (RevPAR) improving by 3.5%. Further, we note employment growth, higher real income, and increased household net worth reinforced consumer confidence and sentiment in the space. Thereby, resulting in a steady improvement in business and leisure travel, and higher transaction volumes that are likely to continue.

A recent report by PricewaterhouseCoopers (PwC) shows that new supply is likely to rise 2% in 2018, up from 1.8% in 2017. This, in turn, may result in a 0.3% increase in occupancy rates in 2018 to 66.3%. Moreover, ADR and RevPAR are anticipated to improve 2.6% and 3%, respectively, this year. In 2019, the industry is likely to register ADR and RevPAR growth of 2.8% each.

Additionally, according to Smith Travel Research (STR) — a leading information and data provider for the lodging industry and Tourism Economics — U.S. hotels continue to witness robust improvement across all metrics. However, the report revealed that occupancy rate will decline in the fourth quarter of 2018 and in 2019 due to rise in demand post-hurricane in 2017. Despite this, the industry will continue to report record performance due to robust industry fundamental.

We believe the aforementioned factors are likely to boost the performance of hotel stocks. Here we have three stocks from Hotels and Motels industry with a Zacks Rank #1 (Strong Buy) or 2 (Buy).

3 Attractive Picks

Choice Hotels International, Inc. (CHH - Free Report) and its subsidiaries operate as a hotel franchisor worldwide. This Zacks Rank #2 company is based in Rockville, MD. The Zacks Consensus Estimate for its current-year earnings increased 0.5% in the last 60 days. The company’s expected earnings growth rate for the current year is 28.5%. Moreover, its earnings have surpassed the consensus mark in three out of the trailing four quarters, with an average beat of 4.4%.

Extended Stay America, Inc. (STAY - Free Report), which operates, owns and manages hotels in the United States along with its subsidiaries, carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved north 2.7% over the past 90 days. The company’s expected earnings growth rate for the current year is 15%. Also, it has reported better-than-expected earnings in the preceding two quarters.

Hilton Grand Vacations Inc. (HGV - Free Report), a division of Hilton Worldwide, is involved in the hospitality business. The consensus estimate for current-year earnings have witnessed an upward revisions of 7.4% in the past 90 days. The company has an impressive expected earnings growth rate of 54.3% for 2018. Additionally, this Zacks Rank #2 company’s earnings have surpassed the consensus mark in three out of the trailing four quarters.

Bottom Line

These above-mentioned stocks hold promise and look appeasing. Therefore, we believe that the addition of these companies to your portfolio should help you sail through unprecedented market challenges.

Moving ahead, the U.S. hotel industry is likely to benefit from several factors like a developing economy, higher income, increased consumer confidence and a strong labor market. As people are steadfast on spending time with loved ones and keep searching for unique experiences at all price points, companies in this space believe that their diverse portfolio of offerings can continue to boost demand.