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2 cheap shares in the travel sector I’d consider before it’s too late

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Cheap shares seem to be plentiful in the travel sector. Covid-19 caused significant disruption this year with many cancelled flights, holidays, and cruises. However, with recent news of a vaccine, I’m looking at  cheap shares hit hard by the crisis, in anticipation of an economic recovery.

Which cheap shares?

I am looking at companies that were performing well before the crisis but that suffered significantly from lockdowns and travel disruption. Jet2 (LSE: JET2) is a great example, in my opinion. Pre-Covid-19, this package holiday business was performing well, with double-digit earnings growth, steadily growing dividend payouts, and an undemanding valuation.

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Its competitive landscape had shifted to its favour by the demise of Thomas Cook, and its focus on value for money was a hit with customers.

As with many travel companies, Covid-19 caused significant disruption to Jet2 operations in 2020. Planes were grounded, holidays cancelled, and customer plans were postponed. The share price reacted accordingly with a near 90% peak-to-trough decline in February and March.

Is it time to buy cheap shares in Jet2?

The winter period could be challenging for holiday bookings. With lockdowns still in place throughout Europe, it may still take some time for confidence to return. However, as an investor, I try to look six to nine months into the future.

Summer bookings in 2021 could be much more positive. In its most recent statement, Jet2 wrote that for summer 2021, it anticipates “close to Summer 2019 seat capacity levels”. With so many holidays cancelled this year, I reckon the UK public will be itching to go on holiday next year.

Since I last wrote about Jet2, the share price has risen by over 80%. I think in the near term, the Jet2 share price could be turbulent. Nonetheless, I’d still consider buying some more of these cheap shares on any market weakness.

A turnaround story

Another well-known player in the travel sector is SAGA (LSE: SAGA). SAGA is a brand that targets the over 50s with car/home insurance and tours/cruises. These unloved, cheap shares may need some time to turn around. It may only be potentially suitable as investments if they can be held in a portfolio for a few years, in my opinion.

However, that could prove rewarding over the coming years if travel resumes in 2021. According to the company, demand for its cruise holidays is resilient. It’s more a case of when travel will be able to resume. As with Jet2, I reckon with so many holiday plans cancelled this year, there could be pent up demand in 2021.

SAGA’s insurance business seems to be making good progress and could be seen as a source of stability. SAGA has seen 15 years of under-investment in its brand. With a turnaround plan that aims to strengthen its weakened brand, I reckon it has a decent chance of making it a success.

SAGA’s target market is growing in numbers and wealth. Its core customers are also fitter and more digitally savvy than before. There is much room for growth, which is why I’m tempted to invest in these cheap shares.

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Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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