The Best Idea Now Isn't Sexy, But It's Solid (PEB, HST, BEE)

In a perfect world, an investor could simply look at a company's history and its plausible earnings forecasts, and jump in (or out) knowing the stock's current price basically made sense with respect to past and future performance. We don't live or trade in a perfect world though. In the world we're actually in right now, most stocks, sectors, and industries have run up far beyond a justifiable value... perhaps except for hotel and lodging REIT stocks Host Hotels and Resorts Inc. (NYSE:HST), Strategic Hotels and Resorts Inc. (NYSE:BEE), and Pebblebrook Hotel Trust (NYSE:PEB).

No, they're not household names. In fact, there's a decent chance you've never heard of any of them, even if you've stayed at one of the hotels they own. But, Pebblebrook Hotel Trust, Strategic Hotels and Resorts, and Host Hotels and Resorts are surprisingly among the better bets for long-term investors at this point.

There's something of a common thread with PEB, HST, and BEE, not to mention most other stocks and REITs in this space.... improving earnings. The bottom line is improving for all three names.

For Pebblebrook Hotel Trust, the coming year could be a huge one on the earnings front. While PEB shares are priced at a frothy trailing (12 mos) P/E if 106.5, the forward-looking P/E of 15.95 is not only palatable, but underscores how the company has finally shrugged off the occasional big quarterly loss. For Host Hotels and Resorts Inc., it's the same story. The company boasts a trailing-twelve-month profit of 22 cents per share of HST, but that number's on pace to reach 38 cents for 2013 (the first year in a long time all four quarter have been profitable), and is expected to reach 54 cents in 2014. Strategic Hotels and Resorts Inc. is in the midst of an even bigger revolution. It's been in the red for the past four quarter, but BEE is finally within reach of a swing to a profit... the first in years. If one or two of these companies was on the mend, it could be dismissed. To see these three - along with most others - steadily pumping up the bottom line though? The hotel/motel REIT group is expected to double its income for the coming four quarters, making 2014 the industry's pivotal year. It's an industry-wide trend, which tend to last a while and be very trade-worthy.

All of that being said, this is first and foremost an idea rooted in a strong but not overheated uptrend from the Dow Jones Hotel and Lodging REIT Index. The index may not have been the red-hot runner most other industries were this year, but now those big rallies are starting to crumble under their own weight. Meanwhile, the Dow Jones Hotel and Lodging REIT Index has been making measured, maybe even slow, forward progress into the tip of a wedge pattern, and supported by constant contact with its key moving average lines. Thing is, a lot of support and resistance are about to converge, and with nowhere else left to go, the pace of the rally could soon quicken once the ceiling at 109.85 is breached once and for all.

Bottom line? PEB, HST, and BEE may not be thrilling ideas heading into 2014, but they're solid values, and unlike most other stocks, there's still some room left to run here.

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