Low Dollar Yields New Opportunities
By Quint Tatro Feb 11, 2008 10:15 am
Foreign purchasing power a boon to select industries.
At the end of the day I am an optimist. Sure, I'll always remain open minded, but if you gave me a glass it would always be half full, if you put me in a room full of manure I would be looking for the pony and if you told me it was going to rain, I would head to the track and bet on 'da mudders.'
Because of this inherent obsession, allow me to present you with a look at the other side of the dollar decline and some potentially profitable ideas.
The simple truth of a dollar decline means foreign buyers have much more purchasing power with their own currency. Never before has it been as attractive to hop across the pond and visit the USA. While the shopping and sightseeing will be diverse, there is one common theme with all travelers: they will need a place to stay.
Whether the U.S. consumer is crunched or not, foreign travelers are easily picking up the slack, booking rooms at hotel chains such as Starwood Properties (HOT), Wyndham Worldwide (WYN) and Marriott (MAR). From a stock perspective, these puppies have suffered right along with the real estate stocks, however are not beholden to interest rates or a U.S. housing rebound to start seeing top and bottom line growth. These three stocks in particular have started to pursue some bottoming action and I suspect new longer-term uptrends may be starting to ensue.
While boat is an option, in today's 'get there now' society air is the preferred mode of travel across the pond. Companies like Delta (DAL), US Airways (LCC) and American (AMR), which offer daily transcontinental flights and should be seeing an increase in foreign travel to the U.S. Coupled with the slight drop in oil and M&A on the mind, these companies may finally be positioned well for sustained upward growth. The stocks have spent their fare share of time behind the woodshed and are finally starting to show some relative strength. After a nice run over the last couple weeks, each is digesting the gain and setting up for round two.
An educated consumer is a happy consumer and never before have individuals had more travel information at their fingertips than they do now. Travel websites such as Orbitz Worldwide (OWW) offer individuals the ability to review the destination and book their arrangements. Like hotels and air travel, Orbitz has been grouped in the U.S. consumer theme and been taken down accordingly. What investors don't realize is that if my thesis is correct, foreign bookings and inquiries will be on the rise, picking up the domestic slack.
Since there is little to no infrastructure or capital costs, margins remain fat sending most of the top line revenue directly to the bottom line. In the last quarter the company reported a year over year EPS increase of 109% and a 20% revenue bump. Despite being down sequentially the upcoming comparables are extremely low and it will be very interesting to see what this company reports as they are due out at any time. I will be watching closely to see if they mention a boom in foreign exposure.
Many will debate whether retail will benefit from an influx of foreign consumption, which makes a great deal of sense. However I am not quite sure how to measure who will be the winner in this race, so I will leave this discussion for others.
So while the dollar has plummeted and many will discuss the terrible ramifications and the eventual demise of the U.S. financial system as we know it, I much prefer to discuss the other, brighter side. I suspect there is a window of opportunity here where foreigners can take advantage of a declining dollar, and specific domestic companies benefit. I'll be watching closely for my technical clues for entry and encourage you to do the same.
Position in AMR, LCC
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