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."

Nationwide revPAR jumped 13.2% to $57.98 in the week ended Aug. 28, according to Smith Travel Research, while revPAR among what is dubbed the "upper upscale" group rose 13% to $90.99. The midscale group saw revPAR grow 13% to $53. Occupancy was up by 580 basis points to 60.1%, including occupancy of 68.1% in upper upscale properties and 60.8% in the midscale group.

The best-performing city was New Orleans, with revPAR up 43% in the week. The worst-performing city was St. Louis, with revPAR down 8.2%.

Average daily room rates, another key metric measured by hotel industry watchers, was up 2.4% in the reporting week to $96.50, including a 3% jump in the upper upscale group to $133.67 and a 1.6% uptick in the midscale group to $87.23.

In terms of share price gains, China Lodging Group ( HTHT) easily outpaced its peers Tuesday among hotel stocks with at least $100 million market cap, jumping 4% to close at $24.76. China Lodging is a Shanghai-based operator of an economy hotel chain in China.

American depositary receipts of 7 Days Group Holdings ( SVN) pushed up 1.5%. The Guangzhou-based operator of limited service economy hotels in China said last month it returned to year-over-year profitability with quarterly earnings of RMB30.2 million, or $4.4 million at current exchange rates. Revenue surged 24.9% to RMB352.2 million, or $51.9 million.

Results were lifted by the addition of 18 net leased-and-operated hotels and 35 net managed hotels in the second quarter. RevPAR was RMB151.5, or $22.31, compared with year-earlier revPAR of RMB141.8, or $20.88.

The Vanguard Consumer Discretionary ( VCR) and iShares Dow Jones US Consumer Services ( IYC), exchange-traded funds that track the hotel sector and count Starwood, Marriott, Hyatt and Gaylord among their holdings, fell 1.6% and 1.3%, respectively, on Tuesday.

-- Written by Miriam Marcus Reimer in New York.

>To follow the writer on Twitter, go to http://twitter.com/miriamsmarket.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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