3 Stocks to Buy This Summer While They’re Seriously Undervalued

Susan Dziubinski: I’m Susan Dziubinski with Morningstar. Neither sticky inflation nor softening consumer sentiment has stopped Americans from spending money on travel. In fact, passenger counts continue to rise ahead of retail sales growth, and hotel revenue per available room growth continues to trend upward.

Can this keep up? Morningstar expects demand to persist through 2024, and we think demand tailwinds will help offset any potential macroeconomic concerns. While leisure and domestic road travel patterns have moderated, we think business and group trips, international visits, and leisure excursions by sea will support demand.

Today, we’re looking at three travel-related stocks that look seriously undervalued.

3 Stocks to Buy This Summer While They’re Seriously Undervalued

1. Expedia EXPE
2. Sabre SABR
3. Norwegian Cruise Lines NCLH

The first undervalued travel stock is Expedia. Morningstar expects Expedia to see resilient demand and expanding margins during the decade ahead. The company has restructured its platform, and now allows sharing of consumer data analytics and loyalty status across its portfolio, a shift that should drive marketing efficiencies and high-quality traffic to its platform. We’re forecasting strong sales growth of 6% on average during the next 10 years, with operating margins of 12.7% in 2033 versus the 7.5% reported before the pandemic. We think shares are worth $185.

Our second deeply undervalued travel stock is Sabre. We think concerns about Sabre’s financial health, competitive positioning, and lower corporate travel demand have stifled the stock price—and, as a result, investors have an opportunity to own a company with meaningful competitive advantages at an attractive margin of safety. While we think some corporate travel could be displaced long term by video conferencing, we still expect business trips to rebound. In fact, we think Sabre’s sales can return to prepandemic levels by 2028. Plus, we expect Sabre to meet its debt obligations, thanks to its cash levels and free cash flow generation position. We think shares are worth $5 each.

Our final deeply undervalued travel stock to buy is Norwegian Cruise Lines. Norwegian’s use of strategic marketing rather than excessive discounting to fill ships gives us confidence in the firm’s ability to lift pricing during periods of stable economic growth. Morningstar expects Norwegian to achieve 3%-4% average yield growth over time. We also think the firm can reach high-20% EBITDA margins over the next decade, which is close to the 31% rate it booked prior to the pandemic. We also like the company’s focus on shoring up its balance sheet, and we don’t expect it to have trouble paying down debt. We think the stock is worth $30.

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Morningstar senior analysts Jaime Katz and Dan Wasiolek provided the research behind this segment.

Watch 3 International Stocks the Best Managers Have Been Buying for more from Susan Dziubinski.