NEW YORK ( TheStreet) -- Stocks in the hotel sector were mostly in negative territory Tuesday as the major indexes tumbled more than 1%, with Red Lion Hotels (RLH), Morgans Hotel Group (MHGC), Gaylord Entertainment (GET) and Hyatt Hotels (H) leading the sector lower among hotel companies with a market cap larger than $100 million.
Hotel operators are emerging from one of the biggest downturns the sector has ever faced. Some big-name hoteliers recently reporting marked improvements in demand and traffic as of late, helping to push key metrics like revenue per available room, or revPAR, occupancy and average room rates higher industry-wide, though not all hoteliers are out of hot water just yet.
"Industry fundamentals continue to strengthen and demand is getting better every day," Hudson Securities analyst Robert A. LaFleur told TheStreet last month, especially as business travel continues to pick up momentum.
The typical recovery cycle in the hotel industry begins with a return in demand, he said. Higher demand then re-inflates occupancy rates to a point where hoteliers can comfortably raise rates. That provides a compounding effect to revPAR recovery, or what LaFleur calls "the double whammy," of increasing occupancy and room rates concurrently."Despite concerns in the broader market about economic recovery, its sustainability and the possibility of a double dip, we're not seeing evidence in hotels that the recovery is running out of gas," he said. "In many ways it's accelerating." Of LaFleur's buy-rated stocks, his top pick is Wyndham Worldwide (WYN), citing its strong cash flow generation and attractive valuation. His second pick is Starwood Hotels & Resorts Worldwide (HOT), followed by Marriott (MAR). LaFleur is neutral on shares of Hyatt and Host Hotels (HST), a lodging real estate investment trust. "I have no specific criticism for Hyatt and Host, but think their valuations are fair at this point," LaFleur said. "For investors, there's better upside potential with Wyndham and Starwood at this point in the cycle."
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