Motel stocks: checking in | Financial Times

America’s roadside motels are the stuff of folklore, cinematic hideaways for both the romantic and the criminal. But these no-frills, trucker hangouts may well suit different visitors this year: investors. Motel chains’ potential compares well with the outlook for fancier, city-centre hotels that cater to business travellers.

The US hotel industry took in $168bn in sales in 2019, according to the American Hotel and Lodging Association. Last year, it managed to make only half of that. While travel and leisure stocks have rallied in recent months on hopes that vaccinations will kickstart demand, the AHLA does not expect travel to return to pre-pandemic levels until 2024. Within this, business travel is forecast to be down 85 per cent compared with 2019 in the year to April 2021.

Yet as US lockdown restrictions ease, domestic leisure travel has picked up. Instead of flying to some far-flung location, Americans are jumping in their cars and heading out on the highway. 

Roadside motels have, in turn, surged in popularity. With no indoor lobbies, elevators or corridors for visitors to navigate, they make social distancing easier. Guests can simply pull up — Thelma & Louise style — right in front of their room door and skedaddle the next morning. 

Vaccine optimism has boosted the shares of all hotel companies including Marriott International and InterContinental Hotels Group. But these groups have exposure to business and high-end leisure travellers. Their rally looks premature. Moreover, the shares of Marriott and IHG look pricey at 32 times and 29 times next year’s earnings, respectively.

Compare that with Wyndham Hotels and Resorts, with roadside brands such as Super 8 and Days Inn. Though up 147 per cent from pandemic lows, it trades cheaper at 22 times. The group’s other budget and extended stay hotel brands — such as Howard Johnson and Hawthorn Suites — should also benefit from the staycation trend.

Never mind the missing bellhops and poolside service, investors should seek out US roadside chains. They can buy any missing luxuries with their trading profits.

Our popular newsletter for premium subscribers Best of Lex is published twice-weekly. Please sign up here