3 stocks that will benefit from a rebound in vacation travel
AAccording to the American Automobile Association (AAA), 53.4 million people will be traveling for the Thanksgiving vacation. This is up 13% from 2020 and less than 5% from its pre-pandemic level in 2019. Even more people will be traveling for the next vacation in the coming weeks.
This rebound in travel bodes well for companies linked to the travel industry. We asked three of our Motley Fool contributors what three actions they see benefiting from a resurgence in vacation travel. The actions they named are Magellan intermediary partners (NYSE: MMP), Travel Centers of America (NASDAQ: TA), and Delta Airlines (NYSE: DAL).
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Reuben Gregg Brewer (Magellan Midstream Partners): Intermediary companies generally charge fees for moving oil, natural gas and the products to which they are processed. The demand is therefore more important than the prices of raw materials. As the demand for travel increases, so will the demand for petroleum and refined products like gasoline and jet fuel. About 30% of Magellan Midstream Partners’ business comes from pipelines, with the remainder coming from refined products assets. It is perfectly positioned to take advantage of it here.
Magellan Midstream, a Master Limited Partnership (MLP), weathered the pandemic as best it can, noting that its refined products business enjoyed a strong third quarter thanks to increased demand. Management also has high hopes for the future, explaining in the earnings release that it expects a 10% increase in gasoline, 17% in distillate and 40% in fuel shipments from aviation for the year compared to 2020 levels. That’s only 4% higher than 2019 levels, showing just how bad 2020 was. But these improvements essentially bring demand back in line with historical trends.
MMP data by YCharts
And this realignment helps explain why Magellan increased its distribution in the fourth quarter after holding it steady for seven consecutive quarters. The MLP has now increased its distribution every year since its initial public offering (IPO) in 2001. While there have been legitimate concerns about the risk of a reduction in distribution earlier in the pandemic, this problem appears to be resolved at this point. And yet, investors can still collect a whopping 8.9% payout yield. With business returning to normal thanks to a rebound in travel, Magellan looks quite tempting today for dividend-focused investors.
Crowded pit stops
Matt DiLallo (Travel Centers of America): I was one of the millions of Americans who took to the road this Thanksgiving to visit their families. I couldn’t help but notice how crowded the travel centers were as people pulled up to refuel with gas and food.
This should benefit TravelCenters of America, the country’s largest publicly traded full-service travel center network. The company operates 275 easily accessible off-road locations under the TA, Petro Stopping Centers and TA Express brands. These large travel centers offer fuel, food services and convenience store items. TA operates 600 fast and comprehensive services Restaurants, including nine exclusive brands like Iron Skillet and Country Pride. Meanwhile, its stores offer a variety of fresh produce and premium coffee. These travel centers allow travelers and truckers to refuel and refresh in one stop.
The company’s network of conveniently located travel centers along the country’s highway system strategically positions it to benefit from increased vacation travel. It is expected to sell higher volumes of fuel while capturing more non-fuel sales at its restaurants and retail stores. These catalysts should lead to strong sales growth, especially given the rising inflation rate this year. While higher inflation will cut both ways, as rising labor and food costs weigh on its profit margin, TA is still expected to be a big beneficiary as more and more more people will be hitting the road this holiday season.
Airlines fly high this holiday season
Neha Chamaria (Delta Airlines): As the holiday travel season enters its peak, trust the airlines to try and make the most of the travel rebound after being hit hard by the COVID-19 pandemic. Delta Air Lines is one of those airlines that is expected to experience a busy season.
Just days ago, the Transportation Security Administration (TSA) predicted an increase in passenger volume and planned to screen nearly 20 million passengers during the Thanksgiving holiday. While this remains paltry compared to the record 26 million passengers screened during the same period in 2019, it is significantly higher than the passenger travel volumes of 2020.
In fact, in a recent interview with Bloomberg TV, Delta Air Lines CEO Ed Bastian said he expects the airline to fly almost full this holiday season. Just a few days ago, the airline planned to handle 5.6 million passengers during the Thanksgiving period, an almost three-fold jump from its 2020 volume. More importantly, Delta Air Lines is seeing a decline. slight increase in business and international travel, especially after the United States reopened its borders to international travelers from all countries on November 8. In the six weeks leading up to Nov. 8, Delta reported a 450% jump in bookings at international outlets. The increase in business and international travel means increased demand for premium and higher margin seats, which is great news for Delta.
True, a profit could still elude Delta Air Lines in the fourth quarter as jet fuel prices continue to rise, but its revenue is almost certain to grow sharply not only year over year, but also sequentially given the busy vacation travel season. This holiday season could be the start of a turnaround for Delta Air Lines.
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Matthew DiLallo has no position in the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has no position in the stocks mentioned. The Motley Fool recommends Delta Air Lines and Magellan Midstream Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.