Daily Gains Letter

Fear of Ebola Now Creating Weakness in U.S. Stocks?

By for Daily Gains Letter |

Ebola Scare Is Affecting U.S. StocksThe fear of Ebola has caused an increase in pressure towards the U.S. stock markets, particularly in the travel sector and aviation stocks. The concern is real, and if it is allowed to grow in the United States, Asia, or Europe, we could see a significant decline in travel demand that could impact the next few quarters, as my stock analysis would suggest.

The impact on the aviation space has been evident already, as we have seen travel-related stocks come off their tops; albeit, much of this also has to do with the current stock market risk, based on my stock analysis.

However, a big plus to the travel sector has been the major decline in oil prices to the $80.00 level for both West Texas Intermediate (WTI) and Brent crude. My stock analysis indicates this has translated into lower costs for jet fuel and gasoline—which would help to drive up demand for travel, if not for the Ebola fears, so travel by plane is likely to be most affected.

My stock analysis suggests that the market weakness is an investment opportunity to accumulate travel-related stocks, whether they are the airlines, chain hotels, or online travel operators—but the online travel operators are what I’m most interested in.

The following are what I believe to be good examples of the kind of top online travel operators you can put on your stock investment radar, based on my stock analysis.

The “Best of Breed” in the space is the granddaddy of the online travel sector—The Priceline Group Inc. (NASDAQ/PCLN). For some of you who have been active in the stock market for years, you may recall the emergence of Priceline in the late 1990s, when the stock was trading below $20.00 a share. The stock has been one of my top performers over time, given the superlative rise in the stock price to a high of $1,378.96 on March 6, 2014. The stock has since retrenched back to just over $1,000, but it still has a whopping market cap of about $57.0 billion.

Priceline.com Inc Chart

Chart courtesy of www.StockCharts.com

Yet despite the high price of Priceline, my stock analysis indicates that the company continues to be the top player in the sector. Of course, at more than $1,000 a share, the stock is not a realistic buy for many investors, unless you buy fewer than 100 shares or play via leveraged call options, as my stock analysis suggests.

A good alternative play to Priceline may be to take a look at one of the second-tier players, such as Expedia, Inc. (NASDAQ/EXPE), which has a market cap about six-times smaller than Priceline.

Expedia is more attractive at 15.93 times (X) its 2015 earnings per share (EPS) and 1.81X trailing sales, versus 16.67X 2015 EPS and a much higher 7.46X trailing sales for Priceline.

Expedia Inc Chart

Chart courtesy of www.StockCharts.com

Now, a more speculative online travel stock is small-cap Orbitz Worldwide, Inc. (NYSE/OWW), which is much smaller but worth a look due to its more speculative nature, according to my stock analysis.

Consider the comparative revenue growth rate based on data from Thomson Financial in the following chart:

Comparative Revenue Growth for 2014 and 2015

Company 2014 2015
Priceline 25.4% 21.7%
Expedia 20.3% 13.0%
Orbitz 10.7% 6.1%


The table shows the superior valuation of Priceline over Expedia and Orbitz, which is why Priceline is the top of its class, based on my stock analysis.

You will note that Expedia’s relative valuation is pretty good, especially for the current year. At less than $100.00 a share, the stock is also more accessible to the majority of investors.

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