How to Pick the Best Hotel Stocks

Hello friends. This is Vijay Bhambwani here. I hope you're doing great in the markets and my videos are helping you become better investors and traders. This channel, this playlist is made uniquely for my viewers to basically profit from the ideas that we lay forward over here so that you take a bigger share of the profits from the markets.

Friends, first of all, the video I made about cyclicality in the market, seasonality in the market, and how my game plan for the month of September told me that late third week of September and definitely the fourth week of September, normally tends to be bullish because mutual funds need to report their net asset values, or NAVs, is something that you can critically benchmark.

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In spite of the fact that Evergrande came and went and, of course, the problem is ongoing, it's work in progress, but you're seeing how the markets are shrugging off these worries. As I record this video over the weekend and I think this will be released on Thursday, which is a good couple of days from now, I am basically betting on the fact that the markets will either be stable or even if they were to react a little bit, the reaction may not really be all that great, because September end tends to be cyclically a bullish time.

So now that we've established that cycles do exist and in the past videos I've explained to you, there is actually something called the sugar cycle, there's something called an alcohol cycle, and as a matter of fact, the markets are replete, they're full of examples how cycles exist and how traders, savvy traders, can actually make money by trading as per these cycles.

You will be surprised that there are actually some days better than the others, there are hours of the day that are better than the others to trade and there are some hours of the day where bullish trades are more profitable and some, where bearish trades are more profitable. More on that later but I have established to you the fact that cyclicality is an undeniable truth in the market.

Now, a couple of months ago, I had made a video about the hotel and hospitality sector, and even though the person who tagged me on my social media account was not a subscriber of the YouTube playlists, and he is now, he was amazed at the aspect of cycles. Do remember, this is not the first time that have talked about cyclicality. I've said this enough times in the last two and a half years that I have been making videos and posting them here.

So he said Vijay, why don't you make a video about how to select a good hotel stock because no two hotel stocks are the same?

Now, choosing the hotel sector is more generic, and how to choose a better hotel stock would be a little more specific. As usual, our compliance issues restrict me from revealing the names of any hotels or mentioning a specific stock. But I am going to lay out some broad the ideas about what I would look for in a hotel before buying its stock.

I need not indulge in all the things that I look forward to in a hotel. I need not want or I need not be a regular visitor, consumer or somebody who utilises these services, but I'm not talking about me being a hotel guest. I am talking about me being an investor in the company's stock. Now, these are two different things. So let's dive right in and see what the hotel ideally should be.

You see, there are two kinds of hotels. One is the bed and breakfast hotel you check in. It's a decent place. It's comfortable. The rooms are nice, clean, well maintained. You hit the sack. You wake up in the morning. There is a small buffet hall there. You go out there and eat and you go around sightseeing, come back in the night. This is somewhere, you keep your luggage, sleep in the night and then go about your business.

Now these are typically small and medium sized hotels, and the stock will be a smallcap, midcap stock, which means these stocks will be absolutely volatile. As compared to the other hotels in its sector, these small and medium hotels will see sharp rallies in the boom time and devastating declines in the bear times because these are typically dependent on tourist footfalls.

In a season where footfalls are not there, for example, in the covid pandemic, I know a lot of hotel owners, relatives, family, friends, etc, who are basically telling me that they are willing to give rooms for pennies to a dollar, just come in there, check in and stay there with a covid negative certificate. That's it. So a hotel room which would have otherwise cost you 10, 12, 15 or 20,000 rupees per day, is now available for 3, 4 or maximum 5,000 rupees per day, if at all, you need to pay that much.

So these stocks will obviously suffer because there is nothing else other than the room revenues to earn from but the hotel has costed crores of rupees to build and if this is the sole revenue source, the stock is not exactly going to do very great. To that extent, a star rated hotel, say a three star, five star, or seven star hotel will do very well.

The reason is that it will have a lot of other activities where you are not required to be a resident guest. You can still go out there and avail of certain services that the hotel has to offer, obviously for a price. So the foothills meter is ticking.

So I would want the hotel with a gymnasium, with a business communication centre, with a pool, and I want the gym and the pool membership to be open for everyone, whether it's a resident guest who obviously avails of it free of cost or even outsiders, who pay small money and become annual quarterly of half yearly members. Why not? The pool is as it is there. The hotel can earn extra revenue by taking outsiders.

The hotel whose stock that I will want to buy should have a minimum, I'm talking of minimum, not maximum, a minimum 3 to 4 restaurants, the more, the better and at least two of them offering different cuisines, should be 24 hour restaurants. You will be surprised at the activity that is on in hotels and in metropolitan cities beyond the normal working hours or beyond normal restaurant hours.

I'll tell you about myself. I trade the commodity markets, the currency, and equity markets, which means my market trading hours, I am talking of trading hours, not the pre-trading research and analysis, not reading up of what happened in the global media, etc, just pure trading hours are 9 am India time to midnight Indian time. So for 15 hours, I cannot get up from my PC apart from the most critical excuses.

So add another 2 to 3 hours for reading and research, and my working day is a typical 18 hours. So if I need to go out and hang around somewhere, it has to be after the market is over. So I want a restaurant that's 24 hours. As a matter of fact, many of my business meetings before the covid pandemic hit us were very, very early morning, and I mean really early morning. I could actually call people at 6:45 am, wind up by 8 am and then come back and trade on my trading terminal.

So this is exactly how business is done and if you are looking at foreign nationals, they might be keeping a time zones of their parent countries, which means you can't really tell them, look the restaurant is shutting at 11 pm, now you need to go and relax in your room. So at least to 24 hour restaurants.

I would want the usual bells and whistles, and I don't think these would be a problem, like travel desk, where the hotel provides a private taxi service, sightseeing, guides, ticketing counter, foreign exchange, etc. Although forex is not something that a savvy kind of a tourist will want to exchange his foreign currency in a hotel because the exchange rates tend to be really very expensive. I have seldom, seldom, whenever I travel abroad seldom changed my currency at the hotel or at the airport. These are two worst places to change your currency, but they got to be there.

Now, this is important. I want a hotel to have a well-developed shopping arcade where they're merchandising, where they're selling stuff and now post covid, the Municipal Corporation of Mumbai, has in principle, decided to allow shopping areas to be open 24 hours. The only restriction would be that in the night time it would be manned by men rather than women. Fair enough. Like a said, for people like me, if I want to buy a pair of socks or a pair of handkerchiefs, can you imagine there are no shops open beyond my working hours on Monday to Friday.

So a well-defined shopping arcade and you will be surprised and the number of people who actually come out and buy at five star rated hotel shopping arcades, even though they're very expensive. I know the expensive, but as long as I am a shareholder of a hotel, I may not buy from the shopping arcade because I know where to get it much, much cheaper but I want people to come there spend their money and make profits for the hotel so that the share price can go up.

I want a very, very popular cake shop. I want a very good book shop well stocked with books, etc. If you have gone to La Patisserie at the Taj, you know what I am talking about. Now it is said in the fine dining circles that 90% of the food is consumed with the eyes, which means it should be a visual treat as well as a culinary delight. It should appeal to the tongue later, but to the eyes, immediately.

So I want a very, very swanky cake shop, which is a selling stuff that I would want to go there and buy even though I am not a resident guest. I can tell you scores of people who go early morning to the Taj, since many, many years they used to do that to buy the bread. The bread in the Taj melts in your mouth. So this is something that any hotel management will tell you. F&B, food and beverages, is turning out to be a very significant aspect of the revenue of hotels.

So if there is going to be just one restaurant where the food is nice, but the decor is not nice where the cutlery and crockery is not really very appealing, where the eyes are not happy, even though the tongue is, I might want to go there and eat, but its stock, I will not buy.

I want a lot of banquet halls, party halls, and marriage halls so that the sunk cost that the property has a cost me to make that hotel, is recovered by rentals from all these activities. If the hotel is in very close proximity to the business district, for example, in South Mumbai, the Trident, which I remember visiting as a child when it was called the Oberoi Sheraton. The Taj Hotel, they are both very close to Nariman Point and New Marine Lines, extremely busy business districts of Mumbai.

So there again, you've gonna have a lot of corporate digs happening out there and which automatically means more revenue for the hotel. I want a hotel to have a lot of food festivals. Now this is something that both the East India Hotels, which runs the Trident and Indian Hotels, which runs the Taj know about.

I have enjoyed with my wife, with my children, and since I was a child with my parents, ice cream festivals, burger festivals, pan-Asia cuisine festivals. You name it, and these guys have done it. During the food festivals, the food is not as expensive. What is the real catch here? The catch is to draw in the younger crowd, which then hangs around in the coffee shops, and generates business. F&B, food and beverage.

Now, just as banks have realised that money lending, which is a fund based activity, is risky, it's risky because there can be NPAs, so they are now offering services. They're offering you insurance. They're offering a mutual funds, the offering you third party products, they're recommending you to open accounts with stockbrokers where they get commissions. Now this was called fee based activity where there is no threat of loss of capital. Charging you money to use the ATM more than three times is fee based income. No loss to the bank. No risk of capital.

Similarly, in the hotel industry, the hotels are now realising that occupying rooms is a difficult proposition for them to invite guests over. So food and beverages are the equivalent of fee based income of banks. I want a hotel stock, which I am going to buy belonging to a company that believes in selling food very aggressively in very, very swanky restaurants.

Preferably, I would want a hotel with casino, although I don't know how to hold a deck of cards. I'm a dummy there. But if I'm gonna be a part owner in a hotel, due too fractional ownership by way of holding its stock, I want people to come out there and lose money, which is what people do in a casino. We know the tables are fixed. It's always the house or the casino that makes the money. The players only by a fluke chance will take money home, but that's the whole game. I want people to come out there and lose money to the hotel so that the hotel can make money and the stock can go even higher.

It should be very, very friendly to foreign tourists. This is where the big money comes in from. Hotels with lineages. Hotels a like the Taj or the Oberois which is now, of course, the Trident. Since ages, since decades we've been calling in the Oberoi of the word remains. These are hotels that are well established and by the way, this is not a stock recommendation on these two. I'm just telling you examples. I am giving you examples of what I would look for in a hotel stock.

So no to hotel stocks are mercy. If you are looking for a hotel stock, be very, very picky. Be very, very choosy, and see to it that the hotel has multiple layers and layers of revenue streams so that even if the rooms are 30, 40, or 50% occupied, the stock is still up.

On this optimistic note I'll bid goodbye to you, not before reminding you to click like on this video if you liked what you saw. Subscribe to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about what videos are being put up out here. Good, bad or ugly, your comments are always welcome and help me reach out to fellow like-minded investors by referring my video to your family and friends.

Thank you for your patience, for this rather long video. I wish you have a very, very profitable week ahead. This is Vijay Bhambwani signing off for now till we meet again in my next.

Take care. Bye.