The No. 1 Travel Stock To Buy Now

Melvin Pasternak's picture

Wednesday, December 9, 2015 - 7:30am

by Melvin Pasternak

Last month, the world mourned terrorist attacks in Paris that left 130 dead. In the wake of the attacks, the State Department issued a global travel alert for U.S. citizens -- an action that was both warranted and fear-mongering. Travel-related stocks, for instance, were punished following both events. 

The travel alert is in place through Feb. 24, but we expect strong travel stocks to begin recovering before then, making now a good time to pick up shares on sale.

With an aggressively expanding portfolio of companies, strong fundamentals and a bullish chart, our favorite stock in the $1.3 trillion global travel market is Expedia (Nasdaq: EXPE).

Expedia established itself as the largest online travel company by bookings after acquiring discount travel site Orbitz in September. Earlier in 2015, it also acquired online travel agency Travelocity.

As a way of gaining competitive advantage over its chief rival, Priceline (Nasdaq: PCLN), Expedia plans to further expand its online presence by acquiring other players. To that end, the company just announced plans to dole out $3.9 billion to acquire do-it-yourself home rental agency HomeAway (Nasdaq: AWAY). 

This strategic move will give Expedia further access to the vacation rental marketplace. According to CEO Dara Khosrowshahi, these acquisitions should create "meaningful upside" in the coming year.

Expedia owns 14 travel brands, including well-known names like Hotwire, Hotels.com and Trivago. But it isn't stopping there. The company -- which already offers more than 270,000 hotel rooms in over 200 countries -- is expanding into the rail business. 

According to research by Phocuswright, an independent travel group, rail is now the fastest growing travel segment. Partnering with SilverRail Technologies, Expedia will soon begin offering travelers a wide set of options to travel by train.

Rail is an important mode of transportation, particularly in Europe and Asia. It is a $33 billion industry in Europe. And online rail bookings in China are estimated to be worth about $2.4 billion with penetration reaching just under 10%, meaning there is a lot of room to grow. 

Overall, Expedia commands 43% of the total worldwide travel market share, leaving plenty of room for growth. Plus, the company should benefit as it continues to develop its technology platform to drive bookings, especially on mobile devices. 

Analysts project strong fundamental growth as Expedia's acquisitions bring in additional revenues. 

For the fourth quarter, they expect revenue will rise 26% year over year to $1.7 billion, while earnings are projected to come in 28% higher at $1.10 per share.

For the full year, analysts estimate earnings will increase 4% to $4.12 per share on a 16% increase in revenue to $6.7 billion. But things really start to heat up in 2016. Analysts see next year's earnings ramping up 50% to $6.20 per share on a 26% jump in revenue to $8.4 billion.

Turning to the chart, the stock has been in a major uptrend for more than two years, bottoming in August 2013 near $46 and nearly tripling in value since then.

EXPE Stock

Shares most recently tested the major uptrend line in January 2015, but quickly recovered. This line currently intersects the chart near $106 and is reinforced by a strong shelf of support around $107, which was formed as shares found buying interest at this level between May and September.

An accelerated uptrend line can be drawn from early February. The most prominent peaks of this uptrend occurred in mid-September at about $130 and early November at the all-time high above $140. Soon after hitting this peak, shares retraced as the terrorist attacks in Paris sparked a sell-off.  

A small symmetrical triangle then formed. This pattern was resolved to the upside on Friday as shares pierced the downtrend line at about $123. The stock is now likely to challenge the $140 peak and potentially move even higher.

Recommended Trade Setup:

-- Buy EXPE at the market price
-- Set stop-loss at $117.89
-- Set price target at $140 for a potential 12% gain by Q2 2016

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This article was originally published on ProfitableTrading.com: The No. 1 Travel Stock To Buy Now

Melvin Pasternak does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.