Market Report: Hotels Are Hot: "Not All Real Estate Plays Are Homebuilders"

Don’t look now, but hotel stocks are hot.

For example, consider the fact that shares of Hilton Hotels (HLT: NYSE) just hit a new 52-week high at $47.16. This tells you that, despite what you see and read in the mainstream media, there are actually some really fantastic pockets of strength in the so-called “real estate” sector. And to my eye, the best opportunity right now comes in the form of Host Hotels & Resorts (HST: NYSE).

According to the WaveStrength predictive model, shares of Host Hotels & Resorts will soon be trading at its 2007 highs at $28.98. That’s $5.43 higher than current levels. After all, with a net asset value of $26 per share, HST is currently trading at a 13% discount to its private market real estate value, so you can easily make the argument for higher prices going into the close of the 2007 calendar year.

Not only that, but this morning, Host Hotels & Resorts reported better-than-expected third-quarter funds from operations, which allowed the company to raise its forecast for the full year. The primary revenue driver was an increase average room rates at its Marriott, Hilton and Four Seasons franchises. Check out the chart:

Revenue per available room (which is commonly accepted as a key measure of the lodging industry’s health) increased by 7.2%. This looks very promising leading into the last quarter of the year, which is why HST raised its full-year forecast between $1.81 and $1.85 per share. But despite the good news, shares of HST traded only fractionally higher on the day. This tells me that Wall Street is still lumping the top hotel names in with the overall bearishness in the homebuilder sector. That’s not fair.

In fact, this represents a very strong investment opportunity. You see, according to my calculations, WOW members stand to gain 188% off the call options that I recommended this morning if HST shares continue to move up as we expect.

And as my partner Adam Lass has been saying for months, “not all real estate plays are homebuilders.” For some reason, Wall Street has yet to catch on.

Remember: Homebuilders have been reporting year-over-year revenue decreases around 65%. But hotel stocks, like HST, are increasing year-over-year room rates by 7%. That’s quite a difference, yet the stock values have failed to reflect this in their share price appreciation.

That’s why our WOW members added calls this morning on the nation’s largest lodging real estate investment trust.

I recommend that you do the same!

Bryan