The market suffered its biggest setback of the year on Wednesday, and that includes nearly 700 exchange-listed stocks hitting new lows. Many of the sinkers have fallen out of favor for good reasons, but there are some potential winners in Wall Street's discard pile.
Advance Auto Parts (AAP 2.64%), Baidu (BIDU -2.91%), Groupon (GRPN 1.51%), and Tanger Factory Outlet (SKT 2.12%) are four of the stocks hitting fresh 52-week lows this week that deserve better than their recent stock charts. Some of these companies are well positioned for an economic slowdown, and they're all attractively priced at this point.
Advance Auto Parts
There was a time when auto parts retailing was the perfect hedge against recession. When the economy stalls, folks keep their cars longer, and that means larger investments in auto care to maintain their aging vehicles.
Advance Auto Parts did post disappointing financial results earlier this week. Net sales barely inched higher on flat comps in the second quarter. Earning per share did improve nicely, but that is largely the handiwork of aggressive stock buybacks eating at the shares outstanding. It was a rare miss for Advance Auto Parts, but should the stock be retreating if recession fears will likely spike revenue in the future? The bottom line is growing nicely, and the stock is now selling for 17 times this year's projected earnings and less than 15 times next year's target.
China's leading search engine is a business that will struggle if the global economy comes undone. Online advertising is only as strong as the desire for marketers to get noticed, and we're seeing China's economic funk bleeding into Baidu's dramatic revenue slowdown. Revenue rose 15% in the first quarter, but Baidu's earlier guidance calls for adjusted top-line growth to decelerate to between 1% and 6% for the second quarter that it will announce next week.
Baidu was one of the market's hottest stocks a few years ago, but it's had a rough run lately. Investors steering clear of Chinese stocks given the trade war tensions isn't pretty, but Baidu hasn't done much to woo investors back given its own crumbling fundamentals. Revenue growth slowing and margins contracting aren't good looks for Baidu, but with its forward earnings multiple now in the teens the stock's approaching historical lows in valuation.
It's fair to say that Groupons and smaller flash-sale specialists aren't as cool as they used to be. Groupon's latest quarter was a dud, as revenue fell 14% -- or 12% on a currency-neutral basis -- as fewer customers and lower traffic weighed on the top line. We're now in an unfortunate 14-quarter streak of declining revenue, and this is the first time that Groupon has posted a double-digit percentage slide in revenue.
Groupon still warrants attention here. The dip in customers is partly by design as Groupon shores up the quality of its revenue. Margins are improving, and Groupon just rolled out Groupon Select, a loyalty program where guests pay $4.99 a month to secure deeper discounts. If we really do wind up in a recession in the coming months, it's a safe bet that folks will warm up to Groupon's heavily discounted deals again.
Tanger Factory Outlet
You can score a 9.6% yield by buying into an operator of factory outlet malls, a retailing niche that would seem to be well positioned for a slowdown. Tanger posted mixed financial results two weeks ago, and while it did lower its net income goal for 2019, the outlet-center REIT did boost its adjusted funds from operation forecast.
Although being a mall operator isn't a very popular position these days, Tanger is holding up well. The occupancy rate for its consolidated portfolio has expanded to 96%, and it is also reporting an increase in traffic and tenant sales. If folks love shopping at a place where major brands and chains unload their overstocked wares for less now, they're going to love saving money in the future. Funds from operations are going the wrong way -- and that could eventually eat into the beefy yield -- but the near-term prospects are bright here.