6 Travel Stocks to Watch in Light of European, U.S. Economic Ills

As Europe continues to try to get its debt ducks in a row, and a double-dip recession still threatens the U.S., cyclical industries like travel are starting to brace for impact. That could translate into serious jet lag for airline, hotel and travel booking stocks — if it keeps business travelers off the road.

Even without another full-blown recession, the travel market has begun to struggle. The Air Transport Association this week predicted a 2% drop from last year in the number of passengers traveling for the 12-day period around Thanksgiving — the busiest travel days of the year. Airlines alone have seen their income evaporate in 2011 — down 66% in the first nine months of the year compared to 2010.

Despite these latest concerns, there�s a little good news: U.S. unemployment was down a hair in October, falling to 9% from 9.1%. And many hospitality and travel stocks are doing well, proving that there�s still optimism, particularly among business travelers, according to the Global Business Travel Association.

Indeed, the business travel market is leading a recovery in the sector, growing by more than 6% in September, according to electronic booking data from Pegasus Solutions. The biggest winners have been strong conference hotels “that have pricing power the sector hasn�t seen in years.”

But a stagnant U.S. economy is prompting corporate uncertainty about business travel spending next year. �Uncertain economic conditions around the world continue to impact companies, which in turn impacts business travel plans and can lead to hesitation in spending,� said Michael McCormick, GBTA�s executive director and COO. �However, business travel spending growth remains vibrant, and the current environment does not portend a dramatic travel slowdown.�

Here are six bellwether travel stocks to watch in case Europe�s woes and other economic headwinds threaten to ground business travelers:

Orbitz Worldwide

What European-travel slowdown? Better than expected third-quarter earnings and a 31% jump in international bookings drove Orbitz (NYSE:OWW) stock up nearly 55% last week. Still, the online travel agency�s domestic bookings slipped 4% — largely on a jump in airline ticket prices. At $2.98, OWW is starting to bounce back from its 52-week low of $1.57 on Oct. 4. With a market cap of $308 million, the stock has a price/earnings-to-growth ratio of 1.46, indicating that it is overvalued.

Expedia

Expedia (NASDAQ:EXPE), which missed third-quarter revenue expectations last week, also reported weaker growth in domestic bookings (a theme that likely will be repeated after the bell Monday when Priceline (NASDAQ:PLCN) releases its quarterly earnings). EXPE�s international bookings rose 21%, while domestic bookings grew only 4%. Company executives voiced concerns about weakness in southern Europe and a cautionary note about the economy. At $28.37, EXPE has battled back from its 52-week low of $19.61 in March. With a market cap of about $7.8 billion, EXPE has a PEG ratio of 1, which means it�s fairly valued. It pays a 1% current dividend yield.

Delta Air Lines

With fuel price volatility and fewer passengers, it�s a bad time for the airline sector in general. But any airline that can score big with business travelers is worth a second look. For the first time ever, Delta (NYSE:DAL) ranked first in Business Travel News� annual airline survey, earning the highest ratings from corporate travel buyers in five out of 10 service delivery categories. At $8.35, DAL is 30% higher than its 52-week low of $6.41 in August. With a market cap of nearly $7.1 billion, Delta has a PEG ratio of about 1.2, meaning it�s fairly valued.

US Airways

US Airways (NYSE:LCC) finished third in BTN�s survey behind United Continental (NYSE:UAL) — a big improvement from last year, when it ranked dead last. �Corporate travel buyers have recognized a more active and flexible US Airways,� the survey said. LCC earned top honors on overall price value and relationships with account managers. At $5.50, US Airways is trading 21% above its 52-week low of $4.53 last month. With a market cap of $892 million, LCC has a PEG ratio of 1.19.

Starwood Hotels & Resorts

High-end travelers helped Starwood Hotels & Resorts‘ (NYSE:HOT) third-quarter earnings beat the Street last week — Starwood reversed last year�s $6 million loss into a $163 million profit. The company�s St. Regis, W, Luxury Collection and Westin resorts — as well as the Away Spa — made big contributions to the bottom line. Still, Starwood executives say they are seeing some softening demand in Europe and Japan. At $50.63, HOT shares have recovered 38% since their 52-week low of $35.76 last month. With a market cap of $9.9 billion, the stock has a PEG ratio of 0.92, meaning that the stock is undervalued. HOT has a current dividend yield of 0.59%.

Hyatt

One-time charges drove Hyatt�s (NYSE:H) quarterly income down more than 50%, company officials said last week. Although H missed analysts� third-quarter estimates, revenue rose 2% to $897 million, and revenue per available room (revpar) rose by 9.2%. Its higher-end brands and international properties drove Hyatt�s revpar growth, a key hotel industry measurement. At $37.01, H is trading 24% above its 52-week low of $29.18 last month. With a market cap of $6.1 billion, Hyatt has a PEG ratio of 4.94, indicating the stock is overvalued.

Bottom Line

While these travel stocks are profiting from growth in the high-end, business travel and international businesses right now, failure to resolve the euro zone crisis could have a serious impact on their fortunes.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.