3 Travel Stocks to Buy for a Year-End Rally Although the COVID-19 Delta variant has marred the travel industry's recovery, the rapid rollout of vaccines, easing of restrictions, and pent-up demand for travel ahead of the holiday season should...

Although the COVID-19 Delta variant has marred the travel industry's recovery, the rapid rollout of vaccines, easing of restrictions, and pent-up demand for travel ahead of the holiday season should help the industry return to its recovery track. In addition, since the stock market is bracing for a year-end rally, some travel stocks should gain significantly. Specifically, we think InterContinental Hotels (IHG), SkyWest (SKYW), and Mesa Air (MESA) are poised to deliver solid returns in the coming months. Read on.

The travel and tourism market is expected to reach $924.28 billion by 2025, registering a 24.5% CAGR, but the industry's year-over-year contribution to global GDP is expected to rise by less than one-third in 2021. Despite fears surrounding the rapid spread of the COVID-19 Delta variant, nearly 54 million tourists crossed international borders in July 2021, the strongest results since April 2020.

With the rapid rollout of COVID-19 vaccines globally, and the economy's reopening, the travel industry is expected to regain its momentum in the near term. Pent-up demand for travel ahead of the holiday season and the rising need for business travel as offices reopen should bolster the industry's recovery. Moreover, since better days may be coming for the stock market as the end of October and beginning of November nears , many travel stocks could witness a rally.

Therefore, we think it could be wise to bet now on quality travel stocks InterContinental Hotels Group PLC (IHG), SkyWest, Inc. (SKYW), and Mesa Air Group, Inc. (MESA). They are expected to deliver significant returns in the near term based on their strong position in the market and solid financials.

InterContinental Hotels Group PLC (IHG)

Headquartered in Denham in the U.K., IHG is a hotel company that operates in the Americas, Europe, Asia, the Middle East, Africa, and Greater China. The company operates hotel brands that include InterContinental, HUALUXE, Crowne Plaza, Hotel Indigo, EVEN Hotels, and Staybridge Suites Hotels. It operates more than 5,977 hotels worldwide and has more than 1,899 pipeline hotels.

Last month, IHG partnered with Josh.ai to design a voice-controlled smart room at the Kimpton Rowan Hotel in Palm Springs, Calif. This next-generation technology software can process multiple requests in one command. In addition, the company looks forward to adopting AI technology to create innovative digital hospitality in its other segments.

IHG's revenue for the six months ended June 30, 2021, increased 15.8% year-over-year to $565 million. The company's operating profit grew 261.5% from its year-ago value to $188 million. Its revenue from fee businesses rose 34.7% from the prior-year quarter to $505 million. Also, the company's adjusted interest increased 16.1% year-over-year to $72 million.

A $1.4 billion consensus revenue estimate for the fiscal period ending December 30, 2021, represents a 40.8% increase year-over-year. The company's EPS is expected to increase at 117.7% per annum over the next five years.

IHG's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has an A grade for Sentiment, and a B for Growth and Quality. We've also graded IHG for Value, Stability, and Momentum. Click here to access all of IHG's ratings. IHG is ranked #3 of 20 stocks in the Travel – Hotels/Resorts industry.

SkyWest, Inc. (SKYW)

SKYW, which is headquartered in St. George, Utah, is a regional airline operator that runs through its subsidiary SkyWest Airlines Inc. in the United States. The company operates through two segments: SkyWest Airlines; and SkyWest Leasing. Its flights are operated as Delta Connection, United Express, American Eagle, or Alaska Airlines flights. In addition, the company offers scheduled passenger service with approximately 2,260 total daily departures to destinations in the United States, Canada, Mexico, and the Caribbean.

In August, SKYW signed an agreement with Delta Air Lines (DAL) to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase. With this latest purchase, SKYW will continue to be one of the largest operators of the Embraer E175 aircraft and should also efficiently serve its partners and passengers.

During the second quarter, ended June 30, 2021, SKYW's total operating revenues increased 87.7% year-over-year to $656.99 million. The company's operating income came in at $115.02 million, compared to a $4.4 million operating loss in the prior-year quarter. Its net income amounted to $61.99 million, compared to a $25.72 million net loss in the second quarter of 2020. Also, the company's EPS came in at $1.22, versus a $0.51 loss per share of $0.51 in the prior-year quarter.

SKYW's revenue is expected to increase 23.7% year-over-year to $2.63 billion in its fiscal year 2021. And its EPS is expected to increase by 2,017.6% in the current year.

SKYW's POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Growth, Quality, and Value.

In addition to the POWR Rating grades I've just highlighted, one can see SKYW's ratings for Stability, Sentiment, and Momentum here. SKYW is ranked #1 of 31 in the Airlines industry.

Mesa Air Group, Inc. (MESA)

MESA is a regional air carrier that serves American Airlines and United Airlines under purchase agreements. The Phoenix, Ariz., company operates a fleet of approximately 155 aircraft with some 470 daily departures. Also, it operates all its flights on behalf of partners as either American Eagle, United Express, or DHL Express flights.

In July, MESA invested in Heart Aerospace ("Heart"), an electric aircraft company that plans to produce electric nineteen-seat ES-19 aircraft. Through this investment, MESA should be capable of reducing its reliance on fossil fuels. This should expand the national transportation system and provide significant growth opportunities for MESA.

MESA's total operating revenues increased 71.2% year-over-year to $125.16 million for its fiscal third quarter, ended June 30, 2021. The company's operating income came in at $14.37 million during the period. Its net income grew 25.1% from its year-ago value to $4.28 million. Also, the company's EPS rose 10% from the prior-year quarter to $0.11.

For its fiscal year 2022, analysts expect MESA's revenue to increase 26.4% year-over-year to $656.79 million. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The company's EPS is estimated to increase 35% next year.

It's no surprise that MESA has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has a B grade for Momentum, Value, and Quality.

Click here to see the additional POWR Ratings for MESA (Stability, Growth, and Sentiment). In the Airlines industry, MESO is ranked #4.

Note that MESA is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

IHG shares were trading at $69.77 per share on Friday morning, up $1.40 (+2.05%). Year-to-date, IHG has gained 7.14%, versus a 20.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Priyanka Mandal

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.

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