Fun is big, so is play in leisure stocks

Feel like kicking up your heels this summer?

Business at leisure companies is up, as Americans seek out the varied pleasures of theme parks, cruise lines, raceways, casinos, resorts and hotels.


This getaway trend, which thumbs its nose at soaring gasoline prices, is a boost to the stocks of these firms that hope everyone has a really good time and spends lots of money.

For example, revenues from the theme parks of Walt Disney Co. (DIS) rose 21 percent in the past quarter, helping that company to a 71 percent earnings increase. The number of foreign visitors to Walt Disney World and Disneyland, which declined significantly after the Sept. 11 terrorist attacks, is also rebounding.


Just don't forget that leisure stocks remain cyclical and susceptible to the vagaries of the economy and consumer sentiment. The revival in activity also means fewer discount deals for vacationers in cruises and other types of vacations.

"Barring a terrorist event of some magnitude or something bad happening to the U.S. economy, business will continue to be a lot better this year in the cruise industry," said Robert Simonson, leisure analyst for William Blair & Co. in Chicago. "While studies show the satisfaction levels of those taking cruises is high, cruises still have very small penetration of the vacation market."

The two cruise firms that control 75 percent of the industry are excellent stock bets, Simonson believes. Royal Caribbean Cruises (RCL), which operates Royal Caribbean and Celebrity cruises, has 28 cruise ships with 58,000 passenger berths. Another choice, Carnival Corp. (CCL), whose brands include the Carnival, Princess, Holland America, Costa, Cunard and Windstar lines, has 113,000 passenger berths.

"The stocks of casinos have been performing very well, and while oil prices have hurt the airlines, they haven't had much of an effect on leisure travel to Las Vegas and other gaming meccas," said Raymond Neidl, casino and airline analyst with Blaylock & Partners in New York. "While casino hotel room pricing is strong, you can still get deals in Las Vegas."

The luck lately has been really good for the gaming hotels.

Mandalay Resort Group (MRG), whose properties include Mandalay Bay, Luxor, Excalibur and Circus Circus, is a Neidl favorite. So are MGM Mirage (MGG), which owns the Bellagio, MGM Grand, Mirage, Treasure Island and New York-New York casinos; Harrah's Entertainment Inc. (HET), which in addition to casinos and hotels owns two race tracks; and Station Casinos Inc. (STN), owner of casinos in Las Vegas and manager of a California casino for a Native American tribe.

Staying in the United States is popular this summer.

"The weak U.S. dollar and the general fear or discomfort with traveling overseas should lead to a strong summer in the U.S.," predicted William Marks, lodging and resorts analyst for JMP Securities in San Francisco. "People aren't going to Europe as much, it's also expensive to go to Canada and it's become cheaper to stay in the U.S."


That's great news for La Quinta Corp. (LQI), which derives half of its lodging business from summer leisure travel, according to Marks. He also likes Gaylord Entertainment (GET), whose holdings include properties such as the Radisson Hotel at Opryland in Nashville and related Opryland properties, and Marriott International Inc. (MAR), which operates or franchises 2,718 lodging properties worldwide.

The only risk for the rest of the year is "terrorism on U.S. soil," Marks said. He doesn't consider interest rates a risk because, if they go up, it means the economy is stronger and that will benefit the hotel industry.

The need for speed is playing an increased role in 2004. NASCAR racing is rapidly gaining in popularity, and the resulting lucrative television contracts have jump-started the motor sports stocks, according to Simonson.

He likes the stock of International Speedway Corp. (ISCA), which owns or operates a dozen facilities that include the Daytona, Talladega, Michigan, Richmond and Darlington race tracks. Another top selection is Speedway Motorsports Inc. (TRK), whose tracks include Atlanta, Bristol, Infineon and Las Vegas speedways.

He also recommends Harley-Davidson Inc. (HDI), the motorcycle company.

There are also mutual funds investing companies that entice us to have a little fun. Here are the one-year results and holdings of funds emphasizing leisure, according to Morningstar Inc.:


Rydex Leisure (RYLIX), up 29 percent, with top holdings Time Warner (TWX), Viacom B (VIAb), McDonald's (MCD) and Starbucks (SBUX).

Fidelity Select Leisure (FDLSX), up 26 percent, with top holdings Comcast (CMCA), McDonald's (MCD) and JetBlue Airways (JBLU).

Icon Leisure & Consumer Staples (ICLEX), up 24 percent, with top holdings Brunswick (BC), CEC Entertainment (CEC), Callaway Golf (ELY), Walt Disney (DIS) and Ruby Tuesday (RI).

Invesco Leisure (FLISX), up 18 percent, with top holdings International Game Technology (IGT), Omnicom Group (OMC) and Cablevision Systems (CVC).

"Aging baby boomers are rapidly getting to the point where, historically, people shift their spending to buying services, such as taking the trip they always wanted," concluded Simonson. "The longer-term demand for leisure products is going to accelerate over the next five to 15 years."

Andrew Leckey is a Tribune Media Services columnist.