Hotel Sector Strong

The rally in hotel stocks has sputtered in recent weeks, but it still may be too early to check out of the sector.

At the very least, the stocks should be able to return to recent highs, market watchers say. The industry's cyclical recovery is far from over, with business travel on the rise and leisure demand remaining strong. Those trends will allow hotels to continue to boost room rates, offsetting potential inflationary pressures such as higher energy costs, factors cited for recent investor skittishness.

"We've seen expense inflation, but we haven't seen inflation in the top line or pricing power," said Asad Kazim, vice president at RReef Funds, a unit of Deutsche Bank Real Estate. "Now we're starting to see pricing power. That ought to mitigate any expense inflation." ...