This Hotel Stock is a Prime Contrarian Pick

There is plenty of pessimism to be unwound around HLT

Jul 7, 2021 at 1:27 PM
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Hospitality name Hilton Worldwide Holdings Inc (NYSE:HLT), otherwise known as Hilton Hotels, is outperforming the broader market, up 70% year-over-year. What’s more, the security has recently pulled back to its 120-day moving average, which has been a significant trendline over the past couple of years. The equity’s current perch near the $120 level is also roughly six time its initial public offering (IPO) price, while the $117 area has stepped in as a floor since HLT’s post-earnings move above it in February. Bearing all of that in mind, now looks like an ideal time to bet on HLT’s next move higher.

HLT WT

Analysts are still split towards Hilton Hotels stock, leaving plenty of room for upgrades and/or price target hikes going forward. Of the 14 in question, seven carry a tepid “hold” rating, while seven say “buy” or better. Plus, the 12-month consensus target price of $127 is only slightly above the stock’s price.

Meanwhile, short interest is 65% above pre-pandemic levels despite a recent decline, indicating there is still potential for additional short covering. The 8.09 million shares sold short now make up roughly 3% of the stock’s available float, or nearly a week’s worth of pent-up buying power.

An unwinding of pessimism over in the options pits could push Hilton Hotels stock higher, too. This is per the stock’s 50-day put/call volume ratio of 2.05 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 99th percentile of its annual range. Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.17 stands higher than 85% of readings from the past year. In other words, short-term option traders have rarely been more put biased.

Lastly, Hilton Hotel stock boasts attractively priced premiums at the moment. This is according to its Schaeffer's Volatility Index (SVI) of 26%, which stands higher than just 3% of all other readings from the last 12 months. Our recommended call option has a leverage ratio of 7.5, and will double on a 12.8% jump in the underlying equity.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this HLT commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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