Aug. 7--Like so many other sectors of the economy in this summer of discontent, the travel business has been full of gloomy news. 

Major U.S. airlines say that the sputtering economy has reduced the number of business trips so much that they expect to lose $1.5 billion this year. And hotel companies are warning investors that, while they aren't suffering as much as the airlines are, profits will be down in 2001, mostly because of the same slowdown in business travel. 

With travel always a cyclical and tricky business, many financial analysts are lukewarm at best these days about making money on hotel stocks over the next 12 months. 

Bear Stearns & Co. Inc., for one, "just doesn't get excited when it looks at the next six to 12 months for the lodging sector," Robert A. LaFleur, one of the firm's hotel analysts, said in an interview last week. 

But there are lodging specialists on Wall Street, including those at Bear Stearns, who say that, if you pick your hotel stocks carefully, there is opportunity for healthy returns over the next year and beyond. 

In fact, in the last week in July, analysts with positive ratings on three major companies, Starwood Hotels & Resorts Worldwide Inc., Extended Stay America Inc. and Hilton Hotels Corp., outnumbered those with neutral or negative ratings. Analysts are roughly divided in their opinions of Marriott International Inc. and Four Seasons Hotels Inc., the other two large-capitalization lodging companies. 

Since the beginning of the downturn in technology stocks in early 2000, lodging has been a good place in which to invest, industry watchers have pointed out. 

One reason is that it is benefiting from the investment movement back to what, in the case of lodging companies, are literally old-fashioned bricks-and-mortar operations. 

"Since the tech wreck, people care about cash and earnings," said Dan Gibson, a senior vice president of Starwood, which owns the Sheraton and Westin brands and other chains. "We generate a tremendous amount of cash, and that's tremendously important to investors." 

From the start of 2000 through Friday, share prices of 12 lodging companies tracked by the Credit Lyonnais investment banking firm were up 63.4 percent, compared with a 15.8 percent decline for the S&P 500. 

"So how can this be?" Credit Lyonnaise analyst Bryan A. Maher had asked rhetorically of a similar comparison in a June 18 report to investors. "Simply put, we believe that there is a large contingent of lodging investors that is looking beyond the near-term uncertainty regarding lodging room demand ... and a bevy of downward earnings estimate revisions. Rather, investors appear to be keenly focused on an improving fundamental outlook for the lodging industry in 2002 and 2003." 

Maher complained in the report, and in an interview later, that news reports about the outlook for the hotel business in recent months have been too pessimistic. 

Other analysts, consultants and executives said that, despite the sector's good performance in the stock market, there are reasons to be concerned about the near-term future. The biggest concern is the increased number of unoccupied hotel rooms. 

From the mid-1990s through 2000, the robust economy created such strong demand for hotel rooms that lodging companies achieved healthy occupancy levels while steadily increasing their average daily rates. 

At about the same time, from 1994 through 1999, hotel companies steadily expanded the number of rooms available. Yet business was so good that the industry's basic measure of financial fitness -- revenue per available room -- rose steadily, too. 

But this year, occupancy began to fall, and hoteliers began cutting their rates to try to fill rooms. 

Now, the PricewaterhouseCoopers L.L.P. consulting firm expects that revenue per available room, will decline this year by about 0.03 percent. That would be the industry's first year-over-year decline in a decade, said Bjorn Hanson, leader of Pricewaterhouse's global consulting practice. 

In another measure of industry health, PKF Consulting, a division of Hospitality Asset Advisors International, projected last month that the industry would see its U.S. operating profits drop by 5.6 percent in 2001. 

"This is a time of getting used to a slower period of growth than we've seen in the last seven or eight years," Jack Corgel, managing director of the parent firm's Hospitality Research Group, said. 

So where does all this leave the investor who is looking for lodging stocks with good prospects over the next 12 months? 

Among the industry's positive aspects for hotel investors or owners is that fewer hotels are opening this year, after a construction boom in 1998 and 1999. Fewer rooms coming onto the market over the next two years or so will help hotel profitability recover once the economy does the same, the consultants and analysts said. 

Among the five companies with the largest market capitalization, more Wall Street analysts like Starwood than any other lodging company, with 14 of the 16 analysts who follow it rating it a "buy" or "strong buy" over the next 12 months. The other two analysts rate it a "hold." 

Among factors listed by analysts who like Starwood are the investment it has made in reinvigorating its Sheraton brand, the potential sale of its Ciga brand of European hotels, and a popular frequent-guest program that appeals to business travelers. 

Extended Stay America, Hilton and Marriott have almost as many fans on Wall Street as Starwood does. 

Extended Stay is rated "attractive" by Bear Stearns because its long-term-stay hotels are more affordable to travelers looking to save money, LaFleur said. The company also is "one of the few still building new properties," he added. 

The analysts who rate Marriott as a buy say its business has held up better this year than some other chains, in part because it has six brands, from the Ritz-Carltons to the moderately priced Fairfield Inns, giving travelers a choice of how much to spend. 

Hilton gets good reviews from analysts for having a strong cost-cutting effort under way and reducing its debt levels this year. 

For anyone with lots of money to invest long term -- say $50,000 to $100,000 or more -- here's another idea: Seek out real estate developers who are putting together syndicates that will build the next wave of new hotels starting in 2002 or 2003, said Mike Leven, chief executive officer of U.S. Franchise Systems Inc., franchisor of the Best Inns, Hawthorn Suites and Microtel brands. 

"There are no really good or bad times to invest in hotels," he said. "There are good, and bad, investments at any time." 

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(c) 2001, The Philadelphia Inquirer. Distributed by Knight Ridder/Tribune Business News. HOT, ESA, HLT, MAR, FS,