The ongoing U.S.-China trade war and geopolitical headwinds are making it tough to invest in multinational companies with lots of overseas exposure. Investors who want to avoid all that drama should take a closer look at companies that generate most of their revenue in the United States.
1. Tanger Factory Outlets: The turnaround play
Tanger's stock tumbled nearly 60% this year as the company shut down most of its outlet centers during the pandemic. It ended last year with an occupancy rate of 97%, but that ratio dropped to 93.8% by the end of the second quarter of 2020 as its tenants discontinued their leases or went out of business.
Tanger also warned that its renewal rates for leases expiring within a year would come in below its historical average of 80% and that it was still collecting deferred rental payments from March and April. As a result, its total revenue fell 26% year over year in the first half of 2020 as its core funds from operations (FFO) plummeted by 47%. Wall Street expects its revenue to decline 25% for the year from prior-year totals as its earnings remain in the red.
Those numbers look grim, and the suspension of its dividend in May exacerbated the pain. However, Tanger's stock now trades at only 1.7 times this year's sales as its business gradually stabilizes.
In mid-September, Tanger said it collected 85% of billed rents in August, up from 81% in July. Its occupancy rate held steady at 93.7%, 98% of its occupied stores had reopened, and traffic over the previous six weeks had rebounded to 89% of the prior year's levels. Therefore, Tanger's stock could rally if its third-quarter report on Thursday, Nov. 5, clears Wall Street's low bar.
2. American Eagle Outfitters: A top apparel retailer
American Eagle Outfitters (AEO) had been one of the most resilient mall-based apparel retailers prior to the crisis thanks to the strength of its Aerie brand, but its stock dipped 7% this year as it shuttered its stores during the pandemic and suspended its dividend.
Aerie, which sells lingerie and activewear for young women, pulled shoppers away from L Brands' Victoria's Secret with body-positive marketing campaigns and cheaper products. American Eagle also remains the second-most-popular clothing brand after Nike among U.S. teens, according to Piper Sandler.
AEO's revenue fell 26% year over year in the first half of 2020, and it ended the period with a net loss. But Aerie's revenue growth turned positive again in the second quarter, rising 32% year over year with a 113% jump in digital revenue, and offset a 26% revenue decline at its namesake brand.
AEO expects its business to stabilize in the second half of 2020 as it reopens its existing stores, opens new Aerie stores, and expands its e-commerce business. It didn't provide any exact guidance, but analysts expect a 13% year-over-year revenue decline and a net loss for the full year. But next year, its revenue is expected to rise by 16% as it returns to profitability.
Based on that forecast, AEO trades at less than 10 times forward earnings. Therefore, it might be prudent to accumulate some shares of this "best in breed" retailer this month before it posts its third-quarter earnings in early December or resumes its dividend payments.
3. Target: A leading U.S. superstore
Target's stock rallied nearly 20% this year as pandemic-induced purchases boosted its comparable-store sales. Its first-quarter comps grew 10.8%, its second-quarter comps rose a record 24.3%, and its total revenue increased 18% year over year in the first half of 2020 as its EPS jumped 17%.
Target didn't provide any guidance for the full year, but analysts expect its revenue and earnings to both rise by 13% this year before cooling off next year. Based on that forecast, Target still looks reasonably valued at 20 times forward earnings, even as its stock is hovering near all-time highs. Target has also raised its dividend annually for nearly five decades, making it a future Dividend King, and currently pays a forward yield of 1.8%.
Unlike its rival Walmart, which operates international stores, Target's stores are all based in the U.S. Approximately 75% of the U.S. population lives within 10 miles of a Target store, and it's one of the few brick-and-mortar retailers still expanding its store count every year.
Target also leverages its network of 1,898 stores and 44 distribution centers to fulfill online orders with deliveries and in-store pickups. That approach, along with the expansion of its e-commerce ecosystem with new delivery options, widens its moat against Amazon and Walmart.
Target's scale, robust growth, reasonable valuation, and seasonally strong performance during the holidays all indicate it's a good stock to buy before its third-quarter earnings report on Nov. 18.