Here is your VIP list of Pro Picks for the week, offered exclusively to InvestingPro subscribers: a hand-picked selection of S&P 500 stocks that InvestingPro awarded a high financial health score of at least 2.75 out of 5.00.
Historically, stocks that rated above 2.75 have had a high potential to outperform the S&P 500. For a deeper dive into how we make our Pro Picks, read more here.
A recent Bank of America survey found that travel intentions remain robust among consumers, and earlier this month the U.S. Travel Association found a 19% surge from last quarter in Americans planning to increase their spending on leisure travel in the next three months - one-quarter of those surveyed. That’s all excellent news for Booking Holdings (NASDAQ: BKNG ), which runs Booking.com as well as Kayak, Priceline, Cheapflights, and several other popular vacation-booking sites.
Thanks to its explosive profitability and high returns to investors, the company has earned a sparkling “Great Performance” InvestingPro financial health rating of 3.33 out of 5. Booking performs better than virtually all its peers in profit margins, return on common equity, and earnings per share growth, and it is solidly positioned on cash flow: It holds more cash than debt on its balance sheet, and free cash flow exceeds net income. And it puts that cash to work for shareholders, having authorized a brand-new $20 billion share repurchase earlier this year after finishing up its previous $15B buyback.
Last month the company trounced first-quarter earnings-per-share expectations, and while investors were disappointed by a miss on estimates for earnings before interest, taxes, depreciation and amortization (EBITDA), BofA proclaimed the company was “off to a strong start in 2023 with bookings upside and a 2Q outlook that seems conservative.”
Research firm Wedbush, for its part, calls the company one of its top ideas due to its “disciplined” share buyback, its free cash flow and those “best-in-class” margins, as well as its “leading competitive position.”
Even after a more than 30% share-price run since the start of the year, InvestingPro fair value still puts further upside at 23% from current levels.
Expedia (NASDAQ: EXPE ), another travel-site operator, is also riding the tourism tidal wave via its eponymous site as well as Hotels.com, Orbitz, Hotwire, and more. The company’s solid 2.89 InvestingPro financial health score reflects its relentless growth in earnings per share and impressive gross profit margins. In fact, Expedia beats out the vast majority of peers when it comes to its InvestingPro EPS Trend score, as well as on operating income growth and revenue. It also boasts a comfortable operating cash flow margin.
Strikingly, the stock is priced at a tempting price-to-earnings ratio of 10.8x, and InvestingPro’s fair value calculations estimate a whopping 43% climb from current levels after a close to 20% run-up in the shares since the start of the year.
Staying in the summer theme, Pool Corp . (NASDAQ: POOL ) is an aptly named maker of swimming pools and pool equipment. This company’s InvestingPro financial health score, an imposing 3.27, owes to its fat profits, high return on invested capital, and hefty cash flows that can easily cover its interest payments. Pool Corp . ranks in the 90th+ percentile among peers for cumulative growth in earnings per share in the past five years, as well as for its revenue and gross profit trends. And shares are up more than 600% over the past 10 years.
Unsurprisingly, Oppenheimer has an Outperform rating on the stock, and just in the past week Deutsche Bank added it to its Top Picks, arguing that Pool “could stage another more sustained stretch of outperformance on resilient earnings and attractive valuation."
Both InvestingPro fair value and analyst price targets put shares near fair value, estimating share upside at about 10% above current levels after a nearly 20% upswing so far in 2023. So some may consider Pool to be a long-term watch list candidate. But if you do add this one to your portfolio, its modest but consistent 1.2% dividend - which the company has paid for 19 years straight and grown for a dozen consecutive years - will pay you to wait.
Finally, over in the hotel space, the ubiquitous Hilton (NYSE: HLT ) chain has knocked it out of the park with particularly exceptional growth in levered free cash flow, revenue, and gross profit. It has also locked in fantastic profit margins and has delivered a nearly 200% average return on common equity over the past five years, trouncing competitors. Management has been good to shareholders with aggressive share repurchasing: Its authorization was increased to $2.5B late last year.
Barclays recently upgraded the stock to Overweight, calling it “best in class.” The research firm did note that Hilton’s valuation looks about par at the moment, and InvestingPro’s fair value calculations agree. So, again, for some investors, this may be one for the long-term watch list. Shares are up over 10% for the year.
Data as of June 22, 2023.
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