Common sense tells you the ballooning price of oil – which means we all have to shell out more at the gas pump – is bound to hurt the travel-related hotel business.

For now, at least, Wall Street doesn’t buy it, as evident from:

* A slew of buy recommendations on hotel company stocks.

* Above-average and penthouse type price-earnings multiples.

* Snazzy stock gains, with many lodging shares – up an average 46.5% over roughly the last 18 months – trading right around their 52-week highs.

Still, some holders of hotel stocks, such as Maurice Antz, are antsy. In a recent e-mail, he wrote: “Dan, I’m in a pickle. I bought Starwood Hotels (one of the world’s biggest lodging companies) at $31 (now $63.49). I have a nice profit, but I’m concerned about the high price of oil, which has to depress travel at some point, if it hasn’t already done so. My broker thinks I should stay the course, but I’m inclined to say goodbye to the stock. What would you do?”

For starters, Maurice, Morgan Stanley analyst William Greene – and he’s hardly alone – agrees with your broker. He thinks there’s still plenty of green to be made in Starwood, nearly a 20% return, in fact, over the next 12 months.

In fact, he’s convinced it’s okay for investors to check into hotel stocks in general, given what he sees as strong industry fundamentals. His top pick is Sunstone Hotels, which he pegs as nearly a 28% gainer over the next year, followed by Host Marriott, viewed as a 22.5% gainer.

Mr. Greene’s bullish assessment of the lodging industry assumes a series of positive factors, chief among them the demand for lodging remaining robust. He attributes this to solid economic growth (despite concerns it may be slowing), coupled with growing employment, which historically has been positive for business travel trends. Further, he points out, macro factors, like group and convention business, international arrivals to the country, and relatively low domestic airfares, are also bullish for domestic lodging demand.

It means, judging from his rosy outlook, that there’s no need, high oil prices notwithstanding, for dodging lodging, an industry that’s currently enjoying strong earnings and significantly rebounding cash flows.

A favorable supply outlook is thought to be another significant plus, what with industry estimates calling for below-average additional new domestic room supply of 1.6% this year and 1.8% in 2006. They compare with a historical growth rate of around 2.1%. Moreover, no significant increase in lodging room supply is expected until 2008 at the earliest, and hotel companies, which in the past have been active developers of new hotels, are no longer leading new development efforts.

Yet another enticement, according to Mr. Greene, is his outlook for mid-to high single-digit revenue per available room (RevPAR) growth over the next few years. His projection: unit revenue growth of 5% to 8% annually this year and in 2006 and 2007. Accordingly, he favors stocks of companies with the most operating leverage to a strong RevPAR environment, such as Sunstone, which has a 4.6% yield, Host Marriott, and Starwood.

The analyst also believes significant pricing power will help mitigate cost pressures on the labor and utilities fronts. As such, he expects hotels will enjoy 100-200 basis-point improvements in property-level margins for the next few years. Further, he argues that while valuations for lodging stocks – up about 46.5% in roughly the past 18 months – the positive earnings and cash flow outlook from the strong pricing environment makes these stocks among the most compelling investments in the consumer discretionary sector.

But what about those lofty oil prices? Mr. Greene acknowledges they could always cause hotel demand to falter. But so far, he points out, “we’ve seen no sign that high oil prices are affecting American lodging demand.”

Aside from the stocks mentioned above, the analyst also sees 12-month gains ranging from about 10.5% to 13% in such names as Marriott International, Four Seasons Hotels, Hilton Hotels, and La Quinta Corporation.

Merrill Lynch analyst David Anders shares Morgan Stanley’s enthusiasm for the hotel sector, whose near-term trends, he notes, remain positive. He recently raised his 2006 earnings estimates on a trio of companies – Hilton, Starwood, and Marriott International – an action that assumes RevPAR growth of 6% for all three companies and continued improvements in EBITDA (earnings before interest, taxes, depreciation, and amortization).