3 top travel stocks to consider as flight numbers soar

This summer is shaping up to be a big one for the global tourism industry. Here are three travel stocks for those looking to capitalise.

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The global travel industry is booming right now. This is illustrated by the fact that on 6 July, flightradar24 recorded 134,386 flights for the day – the most it’s ever tracked. For investors, I think there could be an opportunity here. With that in mind, here are three top travel stocks to consider buying right now.

Source: flightradar24

The leader in airport rides

When we land at our destination, one of the first things we often do is hail a ride to our accommodation. Therefore I see Uber (NYSE: UBER) as a good way to play the travel theme.

What I like about Uber is that its brand is extremely powerful (it’s become a verb). This gives the company an edge over its competition as it’s likely to be the first rides-sharing app opened when arriving in a new country.

I also like its size and scale. Today, Uber operates in 10,000 cities across more than 70 countries. So it’s not dependent on a single country or region.

Up until now, Uber has struggled to generate a profit. Lloss-making companies are typically higher-risk investments.

However, management is really focused on profits and cash flows at present. So I reckon it’s worth a closer look.

It’s also worth noting that analysts at Evercore ISI just named the stock its top internet pick.

An accommodation powerhouse

Turning to accommodation providers, I really like the look of Airbnb (NASDAQ: ABNB) right now.

This is another company with a very strong ‘verb’ brand name. And, like Uber, it has huge scale – currently it operates in 220 countries worldwide.

Airbnb is already profitable, which reduces risk. Last year it generated a net profit of $1,893m. This year analysts expect $2,350m (24% growth).

There are still risks to consider here, of course. One is new regulation. Recently, the company has been engaged in a spat with New York City, which wants to limit the number of short-term rentals in the city. Another risk is the valuation, which is a little lofty.

With the travel industry booming right now however, I like the risk/reward skew.

Profiting from travel spending

Finally, as a play on travel spending, I like Visa (NYSE: V). It operates one of the largest payments networks in the world.

Visa is well positioned to benefit from the boom in travel because people tend to depend on their credit cards when they go abroad. And it takes a slice of every transaction.

The beauty of its business model is that it’s not exposed to any credit card default risk. That’s because it doesn’t actually issue cards. It just operates the payments network.

Visa shares currently trade on a forward-looking P/E ratio of about 24. That’s higher than the market average. But this is a high-quality company with strong competitive advantages. So I think it’s worth a premium to the market.

Why no airlines?

Now, readers may be wondering why I haven’t highlighted any airline stocks.

The reason is that history shows airlines tend to be poor long-term investments. Running an airline takes an awful lot of capital, and there’s always something that goes wrong.

The three companies I’ve highlighted have asset-light business models. And they are all very scalable.

So, in the long run, I think they are likely to be better investments than airline stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has positions in Airbnb, Uber Technologies, and Visa. The Motley Fool UK has recommended Airbnb and Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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