At the risk of sounding too optimistic, it is highly likely that humans will find a way to deal with COVID-19. There are, however, certain sectors of the economy, like retail-focused real estate investment trusts (REITs), that are taking it on the chin right now because of the pandemic. But if you pick financially strong businesses that can muddle through until science provides the world with an effective vaccine, you might find that you've picked up some great stocks on the cheap.

Here are two stocks to consider right now, before there's a COVID-19 vaccine.

1. It's not that ugly anymore

After decades of annual dividend increases through good markets and bad, Tanger Factory Outlet Center (SKT 1.33%) suspended its dividend in early 2020. Although it was in strong financial shape, it also tapped virtually all of its outstanding credit line to ensure it had the liquidity it needed to get through the hit management expected from COVID-19. Sensing just how bad things could get, the real estate investment trust even went so far as to offer all its tenants rent deferrals so they could better manage the economic shutdowns implemented to slow the spread of the pandemic.

Two people with shopping bags standing in a mall

Image source: Getty Images

Although Tanger was doing the right things to ensure its survival as a business, investors didn't like what they saw, and the stock sold off sharply. It's still down around 60% so far in 2020.

But things are starting to change for the better. Tanger's 38 properties are basically all reopened for business, with stores representing 98% of its leased square footage operating again. Although rent collection is still not 100%, it improved to 85% in August. And the factory-outlet-focused landlord just repaid the credit line it tapped during the worst of the downturn -- in full, from internally generated funds. Occupancy is a touch under 94%, which is pretty good, all things considered.   

Although the impact from COVID-19 is far from over, Tanger's most recent update shows that business is getting back to normal and the worst appears to be over. When a safe, effective, and widely available vaccine becomes a reality, investors are likely to reevaluate the REIT and stop focusing so much on the negatives associated with the coronavirus. Buying this REIT now, as it's starting to show just how strong a player it is in the mall sector, will get you in ahead of the pack.

2. We got this

The next name to look at is Federal Realty Investment Trust (FRT). This REIT owns a carefully curated collection of around 100 strip malls, power centers, and mixed-use developments. Basically, it is focused on markets with high barriers to entry located near sizable wealthy populations. As a show of financial strength -- and a way to tell investors that the REIT is still positive about the long term -- the board of directors increased the dividend in August. It was a token raise, to be sure, but the real purpose was the signal it provided to the market.   

SKT Chart

SKT data by YCharts

During Federal Realty's second-quarter earnings conference call, management was pretty clear about the situation. There are very real headwinds to deal with, but the REIT expects the underlying strength of its portfolio to see it through. Federal Realty was able to sign 50 new leases during the second quarter, which has been the period hit hardest by the COVID-19 economic closures. The rent on the new leases averaged 11% higher than the leases they replaced. One key takeaway from the conference call was that Federal Realty is seeing retailers take this opportunity to move to the highest-quality real estate option, and it seems pretty clear that the REIT has a lot to offer on that front.  

While the COVID-19 hit isn't over yet, Federal Realty is well positioned and financially strong (its balance sheet is rated investment-grade). Moreover, its mixed-use projects tend to be built over multiyear periods, so it has built-in growth opportunities for when the world gets back to a more normal state. Like Tanger, investors are highly likely to rethink this REIT when a COVID-19 vaccine comes to market. But the shares are still off by nearly 40% so far in 2020.

Mercurial investors

Wall Street tends to get a big-picture story in its teeth and then run with it regardless of the differences between individual stocks. That's going on today in the retail REIT sector, with strong and improving businesses like Tanger and Federal Realty getting tossed out with the truly struggling names, such as financially troubled CBL & Associates. Don't make that mistake. Once a vaccine is available, investors will start to look for the retail REIT landlords that appear positioned to thrive as business gets back to normal.

In some ways, early improvements already seem to be taking shape at Tanger and Federal Realty. Don't wait for Wall Street to figure that out.