Nov. 18--While European hotel stocks have been among the hardest hit since September's terrorist attacks in the US, there could be buying opportunities for canny investors. 

In particular, investors in hotel property see the current downturn as a massive buying opportunity and, if cash-rich property investors pile in, there could be a corresponding rise in hotel stock prices. 

Laurence Geller, chief executive of Strategic Hotel Capital, a privately-owned company which owns hotels in the US and Europe, believes that if the downturn continues through the winter, there could be plenty of buying opportunities. 

"We are not looking at a quick recovery in Europe," he says. "This could be a time to buy. If there is a winter of despair and stock prices don't recover, shareholders might sell out at a 30 percent premium to current levels. 

"This is not a time to be rearranging the deckchairs on the Titanic. This industry needs big aggressive steps at both the operating level and the acquisition level." 

Other observers share his outlook. Nick Marsh, executive vice-president of investment sales at Jones Lang LaSalle Hotels, says: "The hotel sector will recover, as it has done in the past, and these investors will enjoy considerable capital and income appreciation in the medium to long term." 

Geller says that the downturn could ultimately prove beneficial. For example, he says the cuts that Strategic has made in the business "will stay cut" while pricing has become more realistic. 

"Room rates were nuts," he says. "That froth has gone from the market. It will take five years to get back to those levels and that's healthy for the industry as it makes travel more affordable." 

The immediate outlook in the industry is grim and share prices have been particularly volatile. Last Monday's plane crash in New York also hit investor sentiment and shares in hotel stocks plunged when the news first hit screens. However, by Tuesday, stocks had recovered some ground as it appeared the plane was not downed by terrorists. 

Hilton Group, the hotel and betting company, also saw its shares drop after issuing a trading statement that was downbeat about the outlook for some of its major hotels. It said that it did not see a reversal of fortune at hotels in cities such as London and Paris for at least six months. 

Indeed, with some experts predicting that hostilities in Afghanistan are likely to continue for another six months, they do not think it likely that hotels reliant on international trade are going to recover significantly for at least this period. 

Since the 11 September attacks, Hilton's five-star London hotels have seen revpar (revenue per available room) levels fall 31.7 percent and drop 17.7 percent at four-star hotels. 

Analysts were nonplussed by the statement; Lehman Brothers, for example, suggested that the shares were fairly valued and described the announcement as "cautious". 

Bear Stearns was more downbeat. "We do not see any new news that would support the recent surge in share price and valuation of Hilton," wrote leisure analyst Mark Abramson . "Valuation is high -- and the current share price provides almost no discount for the possibility of further bad news for the sector or for Hilton Group." 

Hilton's great rival, Six Continents (formerly known as Bass), owner of the Inter-Continental and Holiday Inn chains, also came under analysts' scrutiny last week. 

Credit Suisse First Boston upgraded its earnings forecast for this year and said the company was its key pick and the cheapest stock in the sector. 

It notes a strong balance sheet, the "shield" provided by the franchised hotels and pubs (the company owns chains such as All Bar One and It's A Scream) and the fact that it could pick up one of its competitors on the cheap, given current valuations. 

Six Continents restored a small measure of confidence to the sector this month when it said that11 September was likely to hit full-year profits by $25 million, lower than anticipated. 

The fact is that for such a cyclical industry, this period marks the start of a new cycle. Derek Gammage, managing director of Insignia Hotel Partners, says the economic situation in the industry is comp- arable to the oil price hikes of the 1970s and the Gulf war in the 1990s which "defined their own shifts in global perception and required their own cycles to restore equilibrium". 

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