Tourism wins with the dollar down -- or up

Mar 30, 05 | 8:55 am

Will the dollar keep climbing or resume its fall? Experts disagree, but U.S. tourism could benefit either way. Here's a way to find stocks in three sectors that should gain the most

The U.S. dollar has lost around 20% of its value versus the euro over the past two years. Some pundits expect a recent dollar rebound to continue. Others say it's only a brief respite as the dollar's purchasing power continues to erode.

Given that uncertainty, what's a stock investor to do? Well, there's one U.S. industry that is likely to do well no matter which way the dollar moves: tourism.

The less valuable the dollar, the more expensive it is for U.S. residents to travel overseas. For many, a dollar that buys 20% less than it did a year ago means that trip to Paris can wait. But that doesn't mean folks won't take vacations this year. They'll just go somewhere in the United States instead.

That reasoning works in reverse for Europeans. The United States is a favorite destination anyway, and now they can visit favored spots such as Las Vegas or San Francisco at fire-sale prices.

If the dollar resumes its decline, more U.S. residents will vacation here and more visitors will come from overseas. If the dollar rebounds, the industry should benefit from a strengthening U.S. economy.

So, just in time for vacation season, here's a look at how to make money from a boom in the tourism industry. Three sectors, in particular, look like good investments: lodging, casinos and gambling resorts, and cruise lines.

Lodging: What's in a name?

Although the entire lodging industry gains from increased tourism, high-end hotels and resorts located in major tourist destinations will get the most play.

But there's something you need to know before you start researching hotels and resorts. The name you see on the door is often not the name of the hotel owner.

In many cases, a property owner leases the hotel to an operator, say Sheraton, which operates the property as a Sheraton hotel. When the lease is up, the property owner could lease to another operator and suddenly the Sheraton becomes a Marriott. To add to the confusion, some operators, such as Marriott and Hilton, franchise their brand names to other hotel operators.

Since most property owners require a percentage of revenues or profits, both the property owner and the operator gain when the hotel business booms. When running my screens, however, I couldn't find any publicly traded hotel-operating companies that were good currency plays.

Some operate mostly mid- or low-priced properties that wouldn't appeal to foreign tourists or even to U.S. residents looking for an alternative to Paris or Milan. The outfits that do operate luxury hotels and resorts won't work because they derive significant revenues from outside the United States.

Hotel-property owners: Fast-growing REITs
Because of the tax advantages, most hotel-property owners are organized as real estate investment trusts (REITs). Screening is the quickest way to find the major players. I used MSN's Deluxe Screener to list REITs in the hotel-and-motel industry.

Screen parameter: Industry Name = REIT - Hotel/Motel

The screener listed 17 REITs. Rather than research all 17, I added two additional requirements to highlight the best prospects.

I set a $500 million minimum market capitalization to eliminate small REITs, which would be unlikely owners of big-city hotels and fancy resorts.

Also, I wanted to limit the field to hotel-property owners with good long-term growth prospects, independent of what happens to the U.S. dollar. I did that by requiring at least 5% long-term consensus earnings growth forecasts.

Screen parameter: Market Capitalization >= $500,000,000
Screen parameter: EPS Growth Next 5 yr >= 5

Six REITs met those requirements. Of those, I eliminated Starwood Hotels & Resorts Worldwide (HOT , news , msgs ) because, with properties all over the globe, it's not a pure play on U.S. tourism. I also disqualified Equity Inns (ENN , news , msgs ) because it owns extended-stay properties, not the luxury hotels I'm looking for.

The remaining four hotel-property REITs should benefit from increased foreign tourism.

• Host Marriott (HMT , news , msgs ): Owns luxury and resort properties operated under the Ritz-Carlton, Fairmont and Four Seasons names. It also owns upscale hotels bearing the Marriott, Hyatt, Westin and Hilton names.
   
• FelCor Lodging (FCH , news , msgs ): Owns full-service, all-suite hotels operating under the Embassy Suites and Doubletree Guest Suites names, as well conventional upscale, full-service hotels.
   
• LaSalle Hotel Properties (LHO , news , msgs ): Owns luxury full-service hotels bearing brands such as Westin, Sheraton and Hyatt located in convention, resort and major urban markets.
   
• MeriStar Hospitality (MHX , news , msgs ): Owns upscale, full-service hotels in major markets and resort locations. Its properties operate under the Hilton, Sheraton, Marriott, Ritz-Carlton, Westin, Doubletree and Radisson names.

Casinos and gambling resorts: Staying in Vegas

Las Vegas, by most accounts the most-popular U.S. attraction for overseas visitors, would benefit the most from increased foreign tourism.

I again used the screener to list publicly traded casino and gambling resort operators. I set my minimum market cap to $2.5 billion to avoid small players that mostly operate casinos on American Indian reservations. As before, I required at least 5% expected long-term annual earnings growth to rule out slow growers.

Screen parameter: Industry Name = Resorts & Casinos
Screen parameter: Market Capitalization >= $2,500,000,000
Screen parameter: EPS Growth Next 5 yr >= 5

My screen turned up six candidates. I eliminated one, Boyd Gaming, because much of its income comes from casinos outside of Las Vegas. I also ruled out Caesars Entertainment  and Harrah's Entertainment , which are in the process of merging. Even with several hotels in Las Vegas, the combined company will still derive much of its income from smaller, local markets, and thus is not a good a play on foreign tourism. That left me with three viable candidates.

• Mandalay Resort Group: Operates some of the best-known Las Vegas hotels including the Mandalay Bay, Luxor, Excalibur and Circus Circus.
  
   
• MGM Mirage: Operates major Las Vegas hotels including the Bellagio, MGM Grand, New York-New York and more.
  
   
• Station Casinos: Although it operates smaller and less well-known casinos and hotels than Mandalay and MGM, Station does most of its business in Las Vegas and should benefit from increased tourism.

Cruise lines: Small field, big players
While currency issues come into play when folks get off the ship to shop, their main cost, the cruise fare, is figured in U.S. dollars.

There are only two major publicly traded U.S.-based cruise lines, so there's no need to run a screen to find them.

• Carnival : Operates Carnival Cruise Lines, Princess Cruises, Holland America, Cunard Line and many other brands.
   
• Royal Caribbean Cruises: Operates the Royal Caribbean and Celebrity Cruise brands.

Both will likely benefit from a falling dollar.

While these stocks should benefit from increased tourism levels, there's no guarantee that tourism will actually increase. Many things, from the threat of a terrorist attack to an economic downturn, could upset that apple cart.

At the time of publication, Harry Domash owned shares of LaSalle Hotel Properties.

Source: MSN Money