Hedge Fund Manager Niles Bullish on Travel and Leisure Equities

There has been a brisk pace of consumer air travel, hotel stays, casino visits, and the like, but travel and leisure stocks aren’t reflecting as much.

That’s an indication that there’s a disconnect at play, and that could lead to opportunity with exchange traded funds such as the ALPS Global Travel Beneficiaries ETF (NYSEARCA: JRNY). Supporting the case for JRNY is the point that some market observers are constructive on travel and leisure stocks.

That includes hedge fund manager Dan Niles, who told CNBC that he’s buying travel equities in anticipation of more upside fueled by strong demand amid the looming summer travel season.

“Yesterday we bought more in the reopening category … because we feel like there is a lot more to come,” Niles said in the CNBC interview.

Niles’ firm owns shares of Airbnb (NASDAQ:ABNB), Booking Holdings (NASDAQ:BKNG), Lyft (NASDAQ:LYFT), and cruise operators Carnival (NYSE:CCL) and Norwegian. He also has long positions in Penn National Gaming (NASDAQ:PENN) and Uber (NYSE:UBER). Airbnb, Booking, Lyft, Penn National, and Uber are all JRNY holdings.

Speaking of Penn National, the largest regional casino, that stock is badly bruised, but Niles isn’t the only one who sees opportunity in that JNRY component.

“PENN’s recent underperformance coupled with better sports betting performance presents an opportunity,” said Morgan Stanley analyst Thomas Allen in a Monday note. “While PENN’s underperformance was somewhat warranted given more mixed recent earnings results and declining sports betting market share in key states like Michigan, Pennsylvania and Illinois, we have seen sports betting share stabilize in the US.”

Allen lifted his rating on the casino stock to “overweight” from “market weight.” His $51 price target on the shares implies upside of about 40%.

Broadly speaking, travel and leisure stocks are consumer discretionary names, and those that are not are still reliant on consumer behavior. As Niles pointed out to CNBC, changes in consumer purchases could bolster the case for travel names.

“You’re seeing this big switch from people buying things like PCs and smartphones … to now they’re going and taking flights and going to hotels, etc. That’s where the big switch is we’re seeing right now,” the hedge fund manager told CNBC.

Other travel and leisure ETFs include the VanEck Vectors Gaming ETF (BJK) and the U.S. Global Jets ETF (JETS).

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