What are we looking for?
U.S.-listed hotel, resort and cruise line stocks that have low debt, growing earnings and strong profit margins.
The last 30 days in the U.S. markets have been mixed with some sectors such as basic materials surging (up 6.5 per cent) while others such as technology have languished (down 3.1 per cent). The second-best U.S. sector in this period has been cyclical consumer goods and services, which is up 6 per cent. Within the consumer goods sector, the U.S. hotel, resort and cruise line industry is one of the faster growing constituents with a five-year earnings-per-share growth rate of 17.5 per cent.
The screen
We will be using Recognia Strategy Builder to search for large cap U.S.-listed stocks in this industry.
We begin by setting a minimum market-cap threshold of $1-billion (U.S.). Next, we will set a limit of 2.0 for the debt-to-equity ratio. We prefer companies with lower debt levels as debt is a drag on future earnings growth, particularly in an environment of increasing interest rates.
We will also look for companies that have strong historical earnings growth rates with five-year EPS growth rates of 10 per cent a year or more. Finally, to look for companies with efficient operations, we will set a lower limit on return on sales of 5 per cent.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indices, forex, options and commodities.
What did we find?
Two cruise lines make our list with Royal Caribbean being the largest with a market cap of $16.2-billion. Since hitting a 52-week high on Dec. 30, the stock declined almost 35 per cent in the first six weeks of 2016. The stock has rallied since and on April 29 announced first-quarter results that beat analyst expectations for earnings by a wide margin. Like several other cruise lines, Royal Caribbean may see financial benefits from the opening up of Cuba to cruise ship traffic from the United States.
Vail Resorts owns and operates a number of ski resorts in the United States and Australia. The company's stock has been on a strong uptrend since hitting a 52-week low on Sept. 29. The stock is now up 26 per cent from its lows on the back of strong revenue and earnings growth.
Hilton Worldwide Holdings is the largest company on our list with a market cap exceeding $22-billion. The company has very strong earnings growth and the best return on sales on our list at 17.7 per cent. On April 27, the company issued first-quarter results that were in line with expectations and included strong guidance.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.