Identifying long term trends and using that knowledge to invest is one of the main strategies people use for investing. When you can identify trends such as the one where there’s more people entering retirement and they want a reliable source of income, it’s quite easy to realise that Challenger Ltd (ASX: CGF) could be a big beneficiary.
Another trend is that the national death rate is predicted to steadily rise over many years. This makes InvoCare Ltd (ASX: IVC) an obvious choice.
One major long term trend that is playing out right now is the boom of tourists to Australia. The Asian middle classes, as well as Western baby boomers, have worked hard and now want to see the world and enjoy retirement.
Here are three stocks that I think could be big beneficiaries from the tourism boom:
Sydney Airport Holdings Ltd (ASX: SYD)
This entity is the operator of Sydney’s Kingston Airport with a market capitalisation of $13.4 billion. In November 2016 it reported a 7.5% growth of international passengers, with a 20.1% growth of Chinese passengers compared to November 2015.
Sydney is Australia’s main airport where most passengers will fly into and it also is the most visited destination. It seems as though passenger numbers are going to keep growing strongly over the coming years.
This passenger strength helped Sydney Airport grow the dividend to be paid in February 2017 by 23% compared to last year.
It’s currently trading with a dividend yield of 5.21%.
Mantra Group Ltd (ASX: MTR)
Mantra is a hotel chain with a market capitalisation of $885 million.
All of these tourists have to stay somewhere whilst they’re visiting and a good proportion of them are likely to stay in one of Mantra’s hotels.
A key measure to monitor will be its occupancy rates, which during FY16 grew by 2.2% to 78.1%. Mantra also has a growing presence overseas, by the end of FY19 it will have operations in New Zealand, Hawaii, Indonesia, Singapore, Malaysia and Thailand.
It’s trading at 15.8x FY17’s estimated earnings with a grossed up dividend yield of 5.23%.
Crown Resorts Ltd (ASX: CWN)
Crown Resorts is the owner and operator of several large casinos & hotels with a market capitalisation of $8.5 billion.
The more affluent tourists will want to stay at Australia’s most prestigious hotels and perhaps gamble at casinos, both of which Crown can provide.
Its shares have recently come under pressure when some of its employees were arrested in China for allegedly advertising gambling to Chinese nationals. This move could hurt VIP gaming, an important part of revenue.
Crown has a number of projects over the next couple of years that could significantly boost profit such as the Sydney Barangaroo complex and a new hotel at the Melbourne complex.
It’s currently trading at 21x FY17’s estimated earnings with a partially franked dividend yield of 6.19%.
All three of these stocks should be major beneficiaries of the tourism boom over the coming years. At the current prices I think Crown is the best buy because its shares have been sold off more than the hit to earnings from VIP gaming in my opinion.
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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and InvoCare Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.