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The hotel and motel sector offers an appealing contrarian investing opportunity with strong fundamentals and value stock designation. While the group has performed decently, current industry conditions are very favorable and suggest more gains are ahead.
Like most sectors, the key drivers of performance in the hotel/motel are supply and demand. Demand comes from travelers, particularly business travelers, and this has been growing nicely over the last couple of years. Supply comes from the construction of new hotel rooms, and that is lagging well below historical averages because it is still difficult to get financing.
Growing demand and static supply means that hoteliers should be able to continue to raise room prices, which is great for the bottom line. Moreover, because most of these companies are structured as real estate investment trusts (REIT’s), increasing profits will mean growing dividends. Read the full article, which details 7 lodging industry turnaround stock picks.