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Steer Clear of Hotel Stocks

By Thomas Graves With the U.S.-led military action against targets in Afghanistan on Oct. 7 expected to make the public ever more wary of traveling, Standard & Poor's is keeping its "underweight" recommendation on hotel industry stocks.

The industry was already seeing relatively weak demand for rooms before the September 11 terrorist attacks that precipitated the Oct. 7 airstrikes. The U.S. economy's slowing growth was limiting revenue and profits. Weaker business travel was also hurting industry results, and rising U.S. unemployment was dampening consumer spending on leisure activities. The September 11 assault -- and the military response -- have heightened concerns over economic weakness and consumer wariness. These have the potential to cause further deferrals and cancellations of business and leisure travel.

Absent any additional external terrorist or war-related negative events, S&P expects a gradual rebound in occupancy rates in the next few months. But with a weak U.S. economy, and the vulnerability of this industry to future events, S&P advises a cautious stance.

Standard & Poor's maintains 2-STAR (avoid) rankings on shares of Hilton (HLT) and Marriott (MAR). In addition, S&P has 3-STAR (hold) opinions on various other lodging-related stocks. Graves is an equity analyst covering hotel and gaming stocks for Standard & Poor's

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