As I write this, the Dow Jones Industrial Average and the S&P 500 have hit new record highs several times in just the last few trading days. The stock market is starting to look expensive, making it more and more difficult to find attractively priced stocks. However, there are some stocks that could have significant room to the upside.

Here's why I think fast-growing payment processing company Square (NYSE:SQ) and outlet center real estate investment trust Tanger Outlets (NYSE:SKT) could have a lot of upside potential.


Recent Stock Price



Tanger Outlets


Data source: TD Ameritrade. Prices as of Aug. 9, 2017.

Incredible growth but an even larger long-term potential

Payment processing company Square has risen by more than 150% over the past year, after a series of impressive quarters that showed incredible growth. In fact, the recently released second-quarter results showed that Square's revenue jumped by 26% year over year on gross payment volume growth of 32%.

A Square payment terminal on the counter of a bakery.

Image source: Square.

Despite the impressive performance, Square's growth story could still be in the early chapters. For starters, Square has just started to gain real traction with larger businesses -- the percentage of payment volume coming from larger customers has nearly doubled since 2015, but still only makes up 19% of the total.

In addition, Square's innovative business lending business, Square Capital, is growing at a breathtaking rate, with the company making 68% more loans than it did a year ago. Other Square platforms, such as its Caviar food delivery platform, are also still in the early stages of growth. Plus, the company continues to innovate with offerings such as Square Installments, a pilot program that sellers can use to allow customers to finance purchases over a period of time.

Finally, the potential for international expansion is huge. In addition to the U.S., Square is in just four international markets, including the U.K., where it recently launched. Two-thirds of businesses around the world don't yet accept card payments, so it's fair to say that this is a huge opportunity.

The bottom line is that Square could just be getting warmed up. In addition to its other revenue streams, consider that international card payment volume is expected to swell to $45 trillion per year by 2025. With about $57 billion in payment volume over the past 12 months, Square has only scratched the surface of its addressable market with its core business.

The right kind of retail with room to grow

There are a few main reasons I feel that outlet center REIT Tanger Outlets has the potential to pop, both in the near term and over the long run.

First, most companies that make money from brick-and-mortar retail have been beaten down lately, and Tanger is no exception, down nearly 40% over the past year.

SKT Chart

SKT data by YCharts.

To be clear, there certainly are plenty of weak spots in retail. However, the outlet industry is doing just fine. Tanger's earnings continue to grow, occupancy is at a very healthy 96%, and the company is expanding, with two new outlet centers currently under construction. Plus, outlet retail works in any economic climate. As CEO Steven B. Tanger says, "In good times people love a bargain, and in tough times, people need a bargain." In short, I think that the plunge in Tanger's stock is a bit overdone.

Not only is Tanger not facing the same headwinds as many other retail businesses, but there could be plenty of room to grow. Similar to the point I made with Square, Tanger has only begun to tap into its addressable market. In fact, if you added up all of the quality outlet shopping space in the entire United States, it would be less than the retail space that exists in the city of Chicago. Tanger's 43 outlet centers represent a market share of more than 20%.

Most of the company's properties are concentrated in the eastern U.S., and there are plenty of markets underserved or currently not served by the outlet industry that could become targets of future expansion.

In the meantime, Tanger pays a dividend yield of 5.3% and has raised its payout every single year since its 1993 IPO. While there's no telling how long the retail industry headwinds will last, at just over 10 times 2017's expected FFO (the REIT version of earnings), Tanger's cheap stock price might not last much longer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.