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Market Highs May Travel Well

19 July 2013 in Trading Ideas

Some investors may believe that, with the broader market up more than 17% already this year, the opportunities for sizeable upside from here may be dwindling. That assumes, of course, that stocks move in lockstep with the US economic recovery (or at least the perception of recovery).

While that may be true for some industries, it doesn’t seem to be the case for all of them.

Take the travel industry, for example. According to a recent report from the Global Business Travel Association, corporate travel activity tends to follow the broader equity market’s lead with a one-to-two-quarter delay. And increased traveling could lead to higher profits for travel firms, who hope that translates to higher stock prices.1

That’s the thesis behind our latest On The Road motif, a portfolio of stocks of companies providing travel-related products and services (think airlines, hotels, car rental companies, and online booking firms).

With the economic recovery continuing, the trade group just boosted its 2013 travel spending expectations to $268.5 billion, an increase of 5.1% from a year earlier. With business confidence at increased levels, the need to compete in the global economy is driving companies to boost travel spending, the group said.

In addition, job development is on the rise in industries that tend to require more business travel, like business services, finance and utility firms.

The trade group said it continues to expect gains for travel companies throughout the rest of 2013 if the market continues its upward trajectory. However, even if stocks pull back overall, it expects the momentum for travel firms to hang on through the end of the summer.

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As always, investors may have better luck tracking the changes in operating metrics of travel firms than they do in trying to discern the sector’s timing delay.

1Jennifer Booton, “Investing Opportunity? Travel Stocks Ride Economy’s Tailwind,” FoxBusiness.com, June 6, 2013, http://www.foxbusiness.com/investing/2013/06/06/investing-opportunity-travel-stocks-tend-to-ride-economy-tailwind/, (accessed July 18, 2013).