NEW YORK ( TheStreet) -- It's been a tough year for investing in travel stocks despite solid fundamentals in the space. But travel stocks could take flight this holiday season as more people plan to take a vacation or visit family and friends. Travel is expected to be up 5% this holiday season, according to a survey conducted by TripAdvisor, a travel deals and reviews Web site. Of those surveyed, 46% said they will fly this holiday season, up from 43% last year.
In addition, 2% more people plan to travel for Christmas and 3% more on New Year's Day this year, the TripAdvisor survey said. New Year's Day is particularly big in Las Vegas, which typically sees a spike in travelers on that holiday, according to ITG Investment Research analyst Matthew Jacob. As more people take to the skies this holiday season, here are some stocks to help you ring in the new year.
Discount carriers such as Allegiant ( ALGT) could do well this holiday season, as more travelers who could once afford higher-priced, legacy airlines, are trading down to cheaper-priced air travel, said Raymond James analyst Savanthi Syth. Allegiant, which is known for servicing smaller areas, is growing its capacity. There has been a dichotomy in the airline industry regarding capacity with legacy airlines cutting capacity to boost their bottom line, while discount airlines are maintaining or adding capacity to service more customers. Allegiant is also slated to get into Hawaii, a new market, starting next year, Syth noted. The effects of this organic growth should be felt in 2013, she added. One trend to watch for this holiday season is the typical increase in tourism that Las Vegas experiences around the new year. Allegiant may also be along for the Vegas ride since it flies into that city. Allegiant has been able to make up for increases in fuel prices by hiking its fares. The airline reported $191.5 million in operating revenue in the third quarter, up 17% from a year ago. Shares of Allegiant are up almost 6% year to date.
If discount airlines are going to see a spike in travelers, Ryanair ( RYAAY) should see a sizable bump as it offers fares 30% lower than its next discount competitor, Syth said. From an investment standpoint, Syth noted Ryanair has a strong balance sheet and is strategically moving capacity to the markets where the company makes more money. Ryanair's 2012 half-year earnings were up 20% to €451.9 million. The airliner raised its average fares 13%. Shares of Ryanair are down about 2% year to date.
Another international company that's a buy, according to Syth, is Copa ( CPA). The Latin American airline has the advantage of flying at an easier trajectory than some of its other Southern hemisphere counterparts, Syth said. It's central location of Panama is also advantageous. As an investment, Copa has great margins, Syth said, and will not be as severely affected if oil prices go up because its customers are from countries that are commodities-based. The company is growing capacity and has earnings growth, Syth added. Copa reported third-quarter operating income of $102.2 million, up 38.2% from last year. Total revenue rose 31.3% to $476.8 million. Shares of Copa are up almost 10% year to date.
Delta ( DAL) has been disciplined with its capacity, which is helping the company hold onto more of its earnings, Syth said. She considers Delta a buy because the company has plans to fix its weak balance sheet. Delta has $13.5 billion in adjusted net debt, which includes debt and plane leases, and it plans to cut that number by $3.5 billion to $10 billion in 2013. Syth is expecting the company to have $1.20 in earnings per share this year and $2.05 for 2012. Delta's operating revenue in the September quarter rose 10% from a year earlier to $866 million. The airliner's passenger revenue was also up 10% to $793 million. Shares of Delta are down more than 35% year to date.
InterContinental Hotels Group
Hotels might see a pop this season while more people travel, and InterContinental Hotels Group ( IHG) gets a buy rating from Telsey Group analyst Christopher Jones. He noted that key gateway markets, including New York, San Francisco and Miami, are seeing strong tourism and IHG has hotels in some of these markets. From an investment standpoint, Jones noted that IHG keeps expanding but also has one of the lowest valuations among its peers. He considers the company to be "very underleveraged." IHG's operating revenue increased to $467 million in the third quarter from $421 million the previous year. The hotel chain has been able to outperform the industry because of sustained results from relaunching the Holiday Inn, said CEO Richard Solomons in the company's third-quarter earnings report. IHG will be rolling out a plan of several years for its Crowne Plaza brand. Shares of IHG are down almost 12% year to date. >>To see these stocks in action, visit the 5 Travel Stocks to Ring in New Year portfolio on Stockpickr. -- Written by Alexandra Zendrian >To contact the writer of this article, click here: Alexandra Zendrian >To submit a news tip, send an email to: email@example.com.