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| By Sean Brodrick |
There is a new crisis at America’s borders. It’s not that people want to come in illegally. It’s because international visitors DON’T want to come here.
Here’s a chart of international visitors at U.S. airports to illustrate what I mean.
This is just part of the problem, because not all international tourists arrive by plane.
The number of Canadians traveling by car to the U.S. plunged 32% in March. Mexicans traveling to the U.S. by car in March are not yet in, but anecdotal evidence points to a huge drop, to go along with the 23% fewer Mexicans arriving by air.
Why? America is becoming less friendly to visitors.
There is story after story plastered over social media of suspicious officers turning away visitors at the border, forcing those folks to forfeit whatever vacations they paid for. Or even worse, visitors are locked up for days or weeks for minor visa problems.
Add in the recent talk from the White House about the U.S. taking over Canada, Greenland and Panama, and the scattershot tariffs on trade with Canada, Mexico, China, Europe and our other trading partners, and people are finding different places to spend their money.
Devastating Impact
This could have a devastating economic impact. Last year, international tourists spent a record $254 billion in the U.S., according to the U.S. International Trade Association.
Sure, it’s only a small piece of the $2.36 trillion U.S. tourism industry. But I watch cycles and the trends that take place within them. And all signs point toward more people who could be crossing our borders, deciding not to.
Estimates of the cost to the U.S. economy from international visitors staying home this year vary.
Bloomberg Intelligence puts it at $20 billion. But Tourism Economics warns that the hit could range anywhere from $9 billion to $64 billion.
As the saying goes, “a billion here, a billion there, soon you’re talking about real money.”
Heck, major public institutions in Canada, including a pension management firm and a leading hospital, now warn staff against traveling to the U.S.
The loss of visitors from Canada alone could lead to a $2.1 billion loss in spending and cost approximately 14,000 jobs.
What You Should Do
I’m not recommending you buy anything because of this. But you might want to check your portfolio to ensure you don’t hold any high-end hotel stocks with a lot of exposure to international visitors.
Heck, I’ve sure been tempted by a couple of them because of their fantastic dividends. For example …
- Host Hotels & Resorts (HST) owns high-end properties under brands like Marriott, Ritz-Carlton, St. Regis, Hyatt and Hilton. It has significant assets in New York City, Miami, San Francisco, Honolulu and other international gateways. That 6.28% dividend yield looks tempting, but I’m not biting.
- Park Hotels & Resorts (PK) owns many Hilton-brand hotels in San Francisco, New Orleans and Orlando. It also has a significant presence in Hawaii. That’s a market that is heavily reliant on Japanese and Canadian tourism. Its dividend yield is 10.63%, but probably too good to be true.
- RLJ Lodging Trust (RLJ) owns upper-scale and mid-scale hotels that are heavily concentrated in gateway urban markets like New York, Washington, D.C. and Chicago.
All three of these stocks have sold off hard since February. They look like bouncing bargains now, as you can see from this percentage chart …
You can see that Host Hotels is down more than 24% from its December peak, while RLJ is down more than 31% and Park Hotels is down a whopping 35%.
Both Park Hotels and RLJ trade at steep discounts to their book values — what the companies would be worth if you broke them up and sold off the parts.
Wow — that kind of discount, and they pay fat dividends? Usually, I’d back up the truck.
But this time, it’s probably different. Unless and until the U.S. can entice more foreign visitors, these stocks will likely at best be “dead money.” And at worst could take another leg lower before they go higher again.
Their Loss Is Your Gain
If there’s any upside for us, it’s that select U.S. destinations should be less crowded and hotels will be cheaper.
Inflation Insights says hotel rates in the Northeast are down an average of 11%, probably due to a lack of Canadian visitors.
So, get out there and enjoy the bargains.
Just don’t consider these hotel stocks bargains. Don’t put them in your portfolio, at least not yet.
All the best,
Sean
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