New Price Targets, Stock Grades for Top-3 Hotel Names After Recession Change
Hotel stocks are headed for a breakout, another sign of an expanding economy.
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Last week, I wrote about the resurgence of the airline sector. Earlier this year, airline stocks fell in anticipation of a recession that hasn't materialized, making them an intriguing play at current prices.
Recession Odds Are Receding
How likely is a recession this year? The CME’s FedWatch Tool indicates that the U.S. Federal Reserve will likely cut the Fed funds rate by just 25 basis points by mid-September.
The Fed’s concerns are balanced between inflation and growth, with growth getting a slight nod. Anticipated rate cuts have evaporated. This is confirmed by a recent report from JPMorgan that lowered the odds of a recession in 2025 from 60% to 40%.
Like the FedWatch Tool, stocks like United Airlines UAL, Delta Air Lines DAL and American Airlines AAL can reveal much about the state of the economy.
But where are you going to go when you disembark from your flight? For many of us, the answer is one of the major hotel chains.
Time for Check-In
Just like the airline stocks, strong bookings in the hotel sector bode well for the economy in general. If business travel is strong, airlines and hotels are likely beneficiaries.
Interestingly, the charts of major hotel chains look very similar to those of the major airlines. This both confirms our suspicions about a strengthening economy, and provides a vehicle to profit from that anticipated strength.
Let's see what the charts reveal about three of the biggest names in this sector:
1. Hyatt Hotels (H)
Hyatt Hotels H has had an up and down year. Shares of the Chicago-based hotelier are down 14% year to date, but have gained about 9% over the past month.
Hyatt has formed a cup and handle pattern (shaded yellow). The breakout point for the stock is $140. This bullish pattern projects Hyatt to the $175 area; if Hyatt hits that target price, it will reach a 52-week high.
GRADE: B+
2. Marriott International (MAR)
Like Hyatt, Marriott MAR has formed a cup and handle pattern (shaded yellow). The breakout point for Marriott is approximately $275, and the formation projects the stock to the $340 area, a move that would place the stock at an all-time high.
The charts of Marriott and Hyatt are basically twins, but I’ll give a slight edge to Marriott as its new target price occurs at an all-time high, rather than a mere 52-week high.
GRADE: A
3. InterContinental Hotels Group (IHG)
IHG's chart has similarities to the previous charts, but with one key difference. The handle on IHG’s cup and handle (shaded yellow) is in danger of collapse. This makes IHG the weakest name of this group.
GRADE: C
Bottom Line
With airline and hotel stocks both on the verge of breakouts, we are looking at a strengthening economy going forward. This is consistent with the reduction in expectations for Fed funds rate cuts, as well as lowered recession odds, as indicated by JPMorgan analysts.
At the time of publication, Ponsi was long MAR.
