Two big downgrades among the market plunge have taken hotel stocks down even further, but strategist Matt Maley says two of hospitality stocks are starting to reach buyable levels.
BMO downgraded Hilton to market perform from outperform, and Argus downgraded MGM Resorts to hold from buy, both on the possible impact from the coronavirus pandemic. Hilton fell more than 5% on Thursday while MGM plunged nearly 16%.
Maley, however, said the coronavirus panic has now made these hotel stocks oversold.
“[Hilton’s] weekly RSI chart is actually … more oversold, more extreme than it was at the last two bottoms back in 2018 and 2016,” he said Thursday on CNBC’s “Trading Nation,” referring to the stock momentum-tracking relative strength index.
Hilton was up more than 4% in Friday’s premarket.
The same is happening with Marriott, said Maley, noting that the stock’s RSI chart also is signaling oversold. Both stocks, he added, have now “broken down to key lower lows.” Marriott was up more than 5% in Friday’s premarket.
But Maley cautioned that as much as investors want to buy the bottom for the next big pop in a stock, given the breadth of the sell-off, he saw better opportunities lurking in other groups.
“I think if you want to look to be bottom-fishing, you might want to look in some other areas because you can still do very, very well in those,” he said.
Mark Tepper, CEO of Strategic Wealth Partners, said investors should avoid the hotel space altogether in light of the coronavirus’ crushing impact on the travel industry.
“This isn’t a cash-flow issue,” he said in the same “Trading Nation” interview. “This is true real demand destruction. That money is gone. They’re not going to recapture it six months from today.”
Tepper estimated that revenues for hotels in Q2 could drop as much as 50% year over year. Instead, he preferred a “bunker-down approach” that involved four stocks making up what he called a “darkest before the ‘DAWN'” strategy: Domino’s Pizza, Activision Blizzard, Wal-Mart and Netflix.
Disclosures: Mark Tepper owns shares of Domino’s, Activision, Walmart and Netflix.
