How to Invest in Hot Travel Stocks this Summer

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Ah, summertime, and the virtual traveling is easy.

Indeed, booking your getaway has never been easier: It's just a few clicks away, what with all the travel websites competing for your business.

But there's also money to be made from travel websites if you know how to invest in them.

With fierce competition for U.S. travelers, travel websites have increasingly taken on a more global approach, expanding their businesses or establishing partnerships in Europe and the Asia-Pacific, where eMarketer says online travel sales are expected to increase 15% to $91 billion this year and per-capita consumer spending is expected to increase about 37% in the next seven years.

Internet penetration remains low in Asia compared with Europe and the United States, but is growing rapidly, paving the way for travel sites' push into the region.

How to Invest in Online Travel Stocks

Here are five stocks you need to know about when figuring out how to invest in online travel sites:

  • Priceline.com Inc. (Nasdaq: PCLN) put itself on the map as a "name-your-own price" reservation system, touted by official spokesman William Shatner (whose compensation in PCLN stock has reportedly reaped him hundreds of millions of dollars). Today, Priceline has transformed itself into a virtual travel agency to the world with a market cap of $41.33 billion.

    Shares of the company have soared from about $638 to $825 this year, making the stock by far the priciest among the travel websites. And you can expect more growth from this stock. Priceline is expanding its global reach, with a strong presence in Europe and significant growth in the Asia-Pacific region, where demand is exploding.

    Priceline, which has beat analysts' expectations each of the past four quarters, increased total gross bookings 36% year over year to $9.2 billion. In the first quarter of 2013, Priceline's revenue increased 26% year over year.

    Wall Street analysts expect the earnings per share to increase this year to $38.48. The stock trades at a bit more than 28 times earnings. On Thursday, analysts at JMP Securities raised their price target on PCLN from $825 to $900, and analysts at Macquarie, Cantor Fitzgerald and Ascendiant Capital Markets have raised their price target to $900 or more, with Ascendiant the highest, at $975.

  • Expedia Inc. (Nasdaq: EXPE), the world's largest travel agency based on bookings, has a strong global presence with its numerous sites, including Expedia.com, Hotels.com and Hotwire.com.

    The company, whose stock value has nearly doubled in two years, has continued its push into the Asian market and is now the largest shareholder in the China-based eLong Inc., which runs the site eLong.net, featuring hotel rooms in China and more than 100 other countries. EXPE's acquisition of Trivago enabled it to make inroads in Europe. And it has strategic partnerships with AirAsia, the huge online travel booking system Sabre in Latin America, and the travel agency Thomas Cook in India.

    Cantor Fitzgerald analysts just reaffirmed their buy rating for EXPE, which has a market cap of $8.11 billion, and put a $75 price target on the stock. It was trading Friday at about $60. Analysts at RBC Capital have retained a "sector perform" rating with a $71 price target, while analysts at Deutsche Bank rated the stock a "buy" and raised their price target from $80 to $86. Wall Street analysts expect earnings per share to increase this year to $3.35. EXPE trades at nearly 27 times earnings and pays a dividend of 52 cents a share for a .90% yield.

  • HomeAway Inc. (Nasdaq: AWAY) connects homeowners with people who want to rent homes to spend vacations in. The HomeAway.com website features more than 700,000 vacation rental listings in 168 countries and gets more than 48 million visits per month. The company makes its money from fees paid by owners of homes who list them. HomeAway has also tapped into Asian business through a partnership with the site Travelmob, which connects vacationers with owners of homes in the Asia-Pacific region.

    During the first quarter of this year, HomeAway's revenues climbed 24% year to year to $79.5 million. The company, with a market cap of $2.79 billion, was trading at $32.79 a share. It's been trading at about 156 times earnings. Wall Street analysts estimate AWAY's earnings this year will total 61 cents a share.

    AWAY competes with the privately held, San Francisco-based Airbnb Inc., which offers a similar service.

  • Tripadvisor Inc. (Nasdaq: TRIP) has built its business largely on the strength of user reviews of hotels, restaurants and destinations. In fact, the users' candid reviews are the ad-supported site's biggest draw. The company says it averaged more than 200 million unique monthly users for the quarter that ended March 31, 2013, making it the world's largest travel website by unique number of visitors.

    TRIP, with a market cap of $8.73 billion, was trading at $60.86 a share. It had a price-earnings ratio of about 42 and EPS of $1.45. The company reported in May that first-quarter revenue increased to $229.9 million, up 36% percent from the previous quarter and 25% year over year. Needham & Co. analysts on Wednesday raised their price target on TRIP from $63 to $75. The stock has been rated a "sell" by one analyst, a "buy" by 10 analysts and a "hold" by 14.

  • Travelzoo Inc.'s (Nasdaq: TZOO) website serves as an online clearinghouse for travel and entertainment deals and discounts. Travaelzoo.com generated a lot of hype in the days leading to the IPO of Groupon Inc., which runs a daily deals site, and TZOO's price soared to more than $100 in 2011, but it has fallen to about $26.

    The market has clearly decided TZOO can't justify a $100 price, but how about $26? Right now, it trades at only 21 times this year's estimated profits. That's a price it can actually support, especially as an improving economy boosts travel.

    TZOO reported Q1 revenue of $42.2 million, up 7.4% from the same period a year ago, while net income climbed 49% year over year to $5.6 million. The company has a market cap of $406.14 million, a price/earnings ratio of 20.84 and EPS of $1.27. Analysts' mean and median targets are $28.