In the wake of terror attacks and Brexit anxiety, investors in the hospitality sector are concerned about the eventual fallout.
Add to that falling hotel room rates and suspected malware hitting leading hotel chains, and many hospitality stocks are under pressure.
But there are two stocks in the sector that boast well-known brands, world-class property management, room for value appreciation and safe dividends: InterContinental Hotels (IHG) and Starwood Hotels & Resorts Worldwide (HOT) .
InterContinental Hotels is one of the world's leading hotel companies. The company has exceptional size, with 5,070 hotels globally and a room inventory of 749,721.
About 85% of InterContinental Hotels' fee revenue is connected to hotel revenue. After five years of average annual earnings-per-share growth of 7.45%, analysts estimate an average annual growth rate of 10% for the next half a decade.
However, the stock's valuation doesn't capture that upside potential.
Morningstar data show that InterContinental Hotels trades at 7.9 times price-earnings, a 50% discount to its five-year average of 19.5 times.
The industry average is 26 times, which points to the hidden potential in shares of InterContinental Hotels.
The company over the past few years has demonstrated robust management effectiveness with return ratios and profitability on the upswing.
InterContinental Hotels is one of the most compelling, inexpensive growth-and-income plays out there.
Various regulators are vetting the big merger between the two hospitality giants, though China has caused a delay.
The combined company will have 1.1 million rooms in more than 5,500 hotels spread across 30 leading brands and should be able to take on peers such as Choice Hotels International and Wyndham Hotel more confidently in the future. This will translate into multi-year growth for shareholders.
Marriott International has already said that it is confident about accomplishing $250 million in annual cost synergies within two years. Starwood Hotels shareholders will own nearly 34% of the new company's common stock following the merger.
After dealing with a little bit of leverage, Marriott International is expected by the end of the year to reach targeted leverage of 3 to 3.25 times adjusted debt to adjusted earnings before interest, taxes, depreciation and amortization. These are huge positives in a deal that will make Starwood Hotels and Marriott International the biggest hotel company globally.
Investors who love dividends backed by big cash flows of $1.7 billion should wait for this merger to close to experience a big upside with lasting momentum.
As we've just explained, InterContinental and Starwood are smart bets now. If you're looking for other growth opportunities, we've found a genius trader who turned $50,000 into $5 million by using his proprietary trading method. For a limited time, he's guaranteeing you $67,548 per year in profitable trades if you follow his simple step-by-step process. Click here now for details.