This column was originally published on RealMoney on Nov. 8 at 9:30 a.m. EST. It's being republished as a bonus for TheStreet.com readers.
Two of the world's richest men, Saudi Prince Alwaleed bin Talal and Bill Gates, announced Monday that they are bidding to take luxury hotel operator
( FS) private. Beyond the bold-face names involved, the deal is intriguing for another reason: It is one of a wave of hotel acquisitions of late.
The Blackstone Group has been an active player, with the purchase of MeriStar Hospitality, Extended Stay America, and other hotel companies. Earlier this year, Prince Alwaleed bought Fairmont Hotels & Resorts.
It is notable that the smart money appears to expect that the hotel industry will do well. I don't try to guess which companies may be acquisition targets or acquirers, but a solid company that is not acquired could do very well for investors in this atmosphere.
I ran lodging companies through my guru screens to identify those the gurus might find hospitable for their money. Keep in mind that my guru strategies do not take into account if a company might be an acquisition target.
Several hotel operators get a seal of approval from at least one guru strategy.
The giant hotel operator
scores highly with my strategy based on James P. O'Shaughnessy's investing style. It gives Marriott points for its large market cap ($16.6 billion), earnings growth every year for the past five, a price-to-sales ratio below 1.5, indicating that the stock is reasonably priced, and a relative strength of 78, which places it among the top 50 of the stocks that passed the previous screens.
, which owns hotels under franchise from a range of brands, including Holiday Inn and Marriott, does well with my screens based on Joseph Piotroski's investment strategies. Piotroski has found that excess returns can be earned by investing in stocks with high book-to-market ratios, as this suggests the stock is selling below what it should be. Lodigan is in the top 20% of the market based on this ratio.
Its return on assets are positive, cash flow from operations for the most recent fiscal year are positive. Its long-term debt to assets ratio for the most recent fiscal year is less than or equal to the previous fiscal year and the current ratio for the most recent fiscal year is greater than the current ratio for the previous fiscal year. All of this indicates that while the stock is selling on the cheap, the company is financially sound.
Choice Hotels International
operates hotels under such brands as Choice, Comfort Inn, Quality, Clarion and EconoLodge. It scores well with my Peter Lynch strategy due to its fast EPS growth rate of 38.81% (based on the average of its three-, four- and five-year EPS growth rates), its reasonable P/E of 25.34 and its low P/E/G ratio (P/E relative to growth) of 0.65. Also a big plus: no debt.
also does well with my Lynch strategy, though not as well as Choice. Its EPS growth rate (20.90%), P/E (24.72) and zero debt are positives, but its P/E/G ratio of 1.18, which is not terrible by any means, is above the strategy's minimum of 1.0.
As with many industries, most hotel companies don't get passing grades from my guru strategies. I suggest you stay away from the following stocks, either because the companies aren't performing well or their stocks are fully valued, which will make it difficult to realize a profit:
Starwood Hotels & Resorts
and, for that matter, Four Seasons.
At the time of publication, Reese held none of the stocks mentioned, although holdings can change at any time.
Reese is founder and CEO of
, an investment research firm, and
, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book,
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback.
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