This Memorial Day weekend, Americans are ready to hit the highway and take to the sky in numbers not seen in more than a decade. Travel volume is expected to be the second highest on record and the most since 2005. Record low summer time gas prices and steady rise in income levels are giving Americans every reason to travel.
The Memorial Day holiday travel period stretches from May 26 to May 30 and marks the unofficial start to the summer season. Hence, now is the right time to bet on fundamentally sound stocks that benefit from this surge in travel.
Record Uptick in Memorial Day Weekend Travel
About 38 million Americans are anticipated to travel this Memorial Day weekend, according to the American Automobile Association (AAA) and IHS Global Insight. Compared to last year, around 700,000 more people will travel. The projected figure of those likely to travel 50 miles or more away from home also compares favorably with the past 10 years’ figures.
Nearly 34 million (about 89%) travelers, an overwhelming majority, is expected to drive to their Memorial Day destinations. Marshall Doney CEO of AAA said that the “great American road trip is officially back.”
But why only road trip, American are also choosing to fly this summer. Around 2.6 million (about 6.8%) Americans are poised to travel by air, which marks an increase of 1.6% from last year. Additionally, 231.1 million passengers are predicted to fly in June, July and August, according to the Airlines for America (A4A). This will result in an increase of 3.8% over last summer’s record numbers. Other modes of transport during the weekend, including cruises, trains and buses, will account for the remaining 4.2%.
Cheap Gasoline to the Rescue
Lowest gas price in more than a decade is the prime incentive for Americans to hit the road. The national average price for gas is around $2.22 per gallon. The AAA survey showed that 55% of Americans are more likely to take a road trip, thanks to such low gas prices. AAA also estimated that Americans saved $15 billion on gas for this year due to low gas prices compared to the same period last year.
According to the U.S. Energy Information Administration, even in the upcoming months of July and August, price for a gallon of gas is expected to come in at $2.24 and $2.2, respectively. When adjusted for inflation, these are expected to be the lowest summer prices since 2003. The survey also found that 36% of the people are expected to take two road trips this summer.
Rise in Personal Income, Upbeat Labor Market
Americans are also feeling motivated to travel for Memorial Day this year due to the increase in personal income and rise in wages. According to the Commerce Department, personal income increased to 0.4% in March, more than the downwardly revised 0.1% in February. Healthier household finances, as reflected by the increase in income, are expected to shore up travel volume.
Wages already increased significantly last month. Average hourly earnings ticked up 8 cents in April following a 6-cent increase the month before. Plenty of job opportunities are also available in many high-paying industries and with the unemployment rate at 5%, there is no immediate reason to think that the job market is souring. Moreover, the employment-cost index that measures workers’ salaries and benefits also advanced 0.6% in the first three months of this year.
Will it Cost Less to Travel?
While income is on the rise, costs are expected to reduce considerably this holiday weekend. As mentioned above, record low gas prices will reduce travel cost via road. In fact, car rentals during this period will average $62, which is 3% less than last year.
Domestic airfares also dropped almost 4% this year, according to A4A. During this Memorial Day holiday period, airfares for the top 40 domestic flight routes will be 26% cheaper than last year, as per AAA’s Leisure Travel Index. Travelers also won’t see an uptick in lodging costs this year. The average stay in a Three Diamond hotel will average $183, while the cost of a Two Diamond hotel will average $151 per night.
4 Stocks to Buy on Record Increase in Travel Volume
Since more travelling generally leads to a toll on vehicles, sale of auto parts get an inevitable boost. Hence, investing in such companies will be a prudent choice. Needless to say, rise in travel will also benefit the travel and tourism industry, which calls for focus on travel and leisure stocks as well.
We have selected four stocks from such areas with a Zacks Rank #1 (Strong Buy) or #2 (Buy). However, it is important to remember that picking winning stocks may not be easy. Hence, we have narrowed down our search with a VGM score of ‘A’ or ‘B.’ Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.
U.S. Auto Parts Network, Inc. (PRTS – Snapshot Report) operates as an online retailer of aftermarket auto parts and accessories primarily in the U.S. PRTS operates through two segments, Base USAP and AutoMD. PRTS has a Zacks Rank #1 and a VGM Score of ‘A’.
SkyWest Inc. (SKYW – Snapshot Report) operates a regional airline in the United States. SKYW operates its flights as Delta Connection, United Express, American Eagle or Alaska under code-share arrangements. SKYW has a Zacks Rank #1 and a VGM Score of ‘B’.
Carnival plc (CUK – Analyst Report) operates as a leisure travel and cruise company throughout the world including the U.S. CUK offers cruises under the Carnival Cruise Line, Princess Cruises, Holland America Line and Seabourn brands in North America. CUK has a Zacks Rank #2 and a VGM Score of ‘A’.
Intrawest Resorts Holdings, Inc. (SNOW – Snapshot Report) operates as a mountain resort, adventure and real estate company in North America. SNOW has a Zacks Rank #1 and a VGM Score of ‘A’.
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