Investors Checking Out of Lodging Stocks

On its earnings call, Starwood tried to downplay these worries. "We don't see any evidence of a slowdown, speaking specifically about the consumer/leisure business," management said, adding that the firm's dependence on the low-end leisure business is very low.

Of course, another worry looming is that a general slowdown in the economy will hurt business travel.

Frankel still expects lodging to have a nice 2007, but he's concerned that if there's a hiccup -- say, RevPar growth in the industry slows from 9% this year to 6% next year -- stocks could face more pressure.

"Next year will be good, just maybe not as great this year," Frankel says.

He says the market may be predicting too much of a slowdown in the sector, yet at some point, you can't fight the tape, he acknowledges. As well, the only near-term catalysts for the group might be a resolution to the Middle East crisis, or a clear signal that Federal Reserve Chairman Ben Bernanke will stop cutting rates, he says.

Until then, lodging stocks could remain a real bummer, although there might still be a bull case to be made for the sector.

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