3 Hotel Stocks to Buy Now

Orient-Express and Starwood outpace hotel peers in share price gains Friday. Here's how to play the sector.
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NEW YORK (

TheStreet

) -- Stocks in the hotel sector were mostly in positive territory Friday, with

Orient-Express Hotels

(OEH)

and

Starwood Hotels & Resorts Worldwide

(HOT)

leading the pack in terms of share price gains among hotel companies with a market cap larger than $100 million.

The sector certainly benefited from

a 2% gain in the major indexes

as investors sifted for bargains ahead of the closing bell, but the hotel industry has also seen marked improvements in demand and traffic as of late, helping to push key metrics like revenue per available room, or revPAR, higher industry-wide.

"Industry fundamentals continue to strengthen and demand is getting better every day," Hudson Securities analyst Robert A. LaFleur told

TheStreet

earlier this 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, followed by

Marriott

(MAR) - Get Report

. LaFleur is neutral on shares of

Hyatt Hotels

(H) - Get Report

and

Host Hotels

(HST) - Get Report

, 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."

Nationwide revPAR jumped 9.8% last week to $63.59, according to LaFleur's research, while revPAR among what he dubs the "upper upscale" group rose 7.7% to $95.24, and in the midscale group, 10% to $58.31.

The best-performing city was New Orleans, with revPAR up 27% in the week ended Aug. 21. The worse-performing city was Phoenix, with revPAR declines of 11.2%.

Average daily room rates, another key metric measured by hotel industry watchers, was up 1.5% last week to $97.32, including a 2.4% jump in the upper upscale group to $133.79 and a 1.2% increase in the midscale group to $88.32.

Of hotel stocks with at least $100 million market cap, Orient-Express outpaced its peers Friday, jumping 5.9% to close at $9.04. Orient-Express is the owner or part-owner of 50 hotel and travel properties in 24 countries, including deluxe hotels, tourist trains and canal cruise businesses.

Starwood, the operator of luxury hotel brands W, Le Meridien and St. Regis, gained 4.8% Friday to close at $47.45 on higher-than-average volume.

Morgans Hotel Group

(MHGC)

, a small-cap developer of boutique hotel properties in U.S. and European gateway cities, enjoyed a share price gain of 4.4% Friday, closing at $6.68 on more than double trailing-30-day average volume.

Hyatt shares pushed up 3.9%, closing at $37.62, on light volume. Opryland Hotel owner

Gaylord Entertainment

(GET)

closed up by 4.4%, to $27.50.

The

Vanguard Consumer Discretionary

(VCR) - Get Report

and

iShares Dow Jones US Consumer Services

(IYC) - Get Report

, exchange-traded funds that track the hotel sector and count Orient-Express, Starwood, Hyatt and Gaylord among their holdings, rose 1.7% and 1.3%, respectively, on Friday.

--Written by Miriam Marcus Reimer in New York.

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Miriam Reimer

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