I’m currently looking for some top investment ideas to add to my Stocks & Shares ISA. I think there could be some opportunities in the travel sector. In particular, I think it could be time to buy Saga (LSE:SAGA) shares again.
The UK vaccine programme is making good progress and reopening plans are on track. Due to the pandemic, household savings have risen on average, according to The Bank of England. In particular, savings increased for the middle and high-income employed, and retirees.
For Saga, the latter group is within the key focus group of over 50s. It is also the group that has greater priority and uptake for Covid-19 vaccines. My view is that there is significant pent-up demand for travel. After over a year of restrictions, I believe many in the over-50s group are willing and able to travel if permitted to do so.
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Saga shares boosted by strong outlook
Saga shares are up over 10% today, at the time of writing. The insurance and travel company reported a £61.2m pretax loss and a fall in revenue by 58%. Despite the losses, Saga shares rose sharply after reporting a reassuring outlook.
The company validated my view and said, “Customer demand remains strong, with evidence of significant pent-up demand from customers ready to travel.”
Total cruise bookings show good demand for later this year and next year. And Saga is ready to resume its cruise business this year as soon as government restrictions allow. I was also pleased to see continued progress in the insurance division with a range of Covid-19 care measures to support customers.
Since I wrote about Saga shares as one of two cheap shares in the travel sector I’d consider, its share price is up almost 90%. Year-to-date, the Saga share price is up 54%, so is it too late to buy? For me, it’s not – I’m tempted to buy some more shares!
Despite the share price strength this year, I think there could be much further to go. The business is starting to deliver on a strategy that should return Saga to sustainable growth. The brand is historically strong, but it has seen 15 years of under-investment. Its customers are also cash-rich, fitter, and more digitally savvy than before.
Share price risks
Investors in travel shares have experienced a turbulent 12-18 months. Risks to the travel sector have not disappeared. Much is dependent on government restrictions, which in turn is dependent on the virus. Saga shares are not immune to these risks.
Although the coming months look promising with regards to reopening plans, the impact of the virus and related restrictions are not guaranteed thereafter. Travel shares could be adversely affected if restrictions are reintroduced.
For Saga, its insurance business provides a resilient balance to the more cyclical travel arm. Compared with a pure-play travel company, the combination of these two arms provides less overall risk, in my opinion. As such, I’m much more comfortable in adding to my Saga shares investment.
