Weekly Investment Idea
Just recently I have found myself on websites and apps related to travel, staying in hotels and general leisure time activities. The UK is fully open and booking a hotel room is quite difficult in the places that I am looking to stay in over the weekends, due to the lack of availability of rooms. The leisure and tourism service industry were decimated during the pandemic lockdowns and the hope is that they make a full recovery. Anecdotally I would say venues are appearing to be busy and any business that survived the last 18 months has a real chance at future success if we can avoid going into any further lockdowns in the future. Travel companies have supposedly lost about 80% of their usual business and the next 6 weeks are unlikely to get them back to pre-pandemic levels. The hope is that enough can be done to have them survive for another 12 months. The British weather is always a problem, and the wet weather will be another hinderance to both families enjoying themselves but also for businesses to maximise their profits. Yesterday I spent quite a lot of time trying to avoid torrential showers in-between blazing sunny spells.
A lot of businesses are asking patrons to keep wearing the face masks and social distancing to reduce the negative impacts of being near people, as August has seen the first signs of an uptick in positive cases in the UK for a couple of months.
The positives to take away from the current statistics around the UK’s COVID situation is that 74.5% of adults have been double vaccinated, with 88.9% having their first vaccine. I would imagine the 14% who have had 1 shot will go on to have their second and we’ll be close to 90% fully vaccinated in the coming weeks.
What is needed now is for all countries to up their vaccination programmes and encourage their citizens to get vaccinated, or for countries to come up with a new way of living with the virus, as unless everyone is vaccinated this virus is going to be around forever.
The stock markets are responding positively to the new surge in vaccinations as people are being strong armed into taking up the vaccine. Lots of companies are refusing to allow colleagues to return to the office until they are vaccinated, lots of bars, clubs and venues will probably require some sort of vaccination proof before allowing entry into their establishments, so the thinking is that this will spur a lot of people on to get vaccinated too.
The UK travel and quarantine restrictions are constantly being reviewed and currently anyone travelling from France no longer has to 10-day quarantine in a hotel. So, there should be an upsurge in travel across the English Channel, with tourists flowing both ways.
The next big thing will be cross Atlantic travel between the USA and the UK, with travellers currently having to go to some extreme lengths to get into the states by first visiting green zone countries that the US are more friendly towards.
Over the weekend I conducted a stock scan for companies that showed an unusual amount of Volume as a filter. The largest cap business to show an unusual amount of traded volume last Friday was the Expedia Group, ticker symbol EXPE. This company trades on the Nasdaq exchange and today it is trading under Short Sale Restricted (SSR).
SSR is also known as the Uptick Rule, which means that new short positions can only be executed in the stock when there is a buyer. This restricts short sellers form piling into a stock who shares have dropped by 10% or more.
Expedia Group, Inc. operates as an online travel company in the United States and internationally. The company operates through Retail, B2B, and trivago segments. Its brand portfolio includes Brand Expedia, Hotels.com, Vrbo, Orbitz, Travelocity, CheapTickets, ebookers, Trivago, and Expedia Group Media solutions.
The last year has seen the Expedia share price rise by around 80%, which is much better than the overall US Hospitality returns of 40.2% and better than the total US market, which has risen 33.8% on average.
Fair value for this company is around $200.00 and it currently trades at a 25% discount, so assuming the vaccination programme is the key to getting back to pre-pandemic levels of travel and tourism there is significant upside to be found.
Earnings in 2020 took a -$2.6bln hit with 2020 revenue down by about 55% at $5bln. 2021 has been obviously much better and the earnings report shows Revenues of $2.11 billion surpassed estimates of $2.04 billion. The companies top line surged 69.4% sequentially and 273% year over year. Market analysts have the stock in between a buy and hold, with a bias towards recommending a buy. The Delta variant of COVID-19 is the main concern as it is the dominant strain and if it becomes more pervasive it could crush the travel rebound.
Technically it is worth looking at the Expedia Group now as the share price has fallen sufficiently, it is being limited to the downside and it is finding support from both a lower bound of the descending channel which originated in March 2021 and from a balance area that formed in February. $142.80 – $143.00 in my opinion would be the lowest we see should they push for a lower low than last Friday. It is more likely that they try and fill the gap that formed post Thursdays close last week up to $160 and down to around $150.
The H1 chart clearly has intraday momentum to the downside but I will be looking for the first signs of a higher high and higher low forming and to see whether the price action can trade above the hourly 200 period exponential moving averages. With technical offering levels of support, it is worth noting that Expedia Group has seen an increase in support from the some of the top money managers recently too.
Yahoo finance shows that Expedia Group was in 86 hedge funds’ portfolios at the end of the first quarter of 2021. The all-time high for this statistic was previously 76.
Expedia Group Inc. is at the heart of everything a technology company who use AI and data to give travellers the easiest online booking and itinerary facilities. Being part of the NASDAQ, it also benefits from the ‘rising tide lifts all boats’ effect, as the Nasdaq heads once again to new all-time highs. When investing in a company it can be beneficial to find something that is at odds with the overall index, as Expedia could be todays, maybe this week’s, bargain.