Please ensure Javascript is enabled for purposes of website accessibility

2 Stocks to Buy for the End of the Pandemic

By Timothy Green - May 27, 2021 at 7:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These retail stocks could rally as consumers return to stores.

More than half of U.S. adults are now fully vaccinated against COVID-19. The pandemic isn't over in the U.S., but consumer behavior is starting to change. While some of the shift to e-commerce may prove permanent, people are returning to retail stores.

That's good news for outlet-mall operator Tanger Factory Outlet Centers (SKT 3.60%) and department store Nordstrom (JWN 0.54%). If you're looking to reposition your portfolio for the post-pandemic recovery, Tanger and Nordstrom look like good bets.

Three laughing women with shopping bags.

Image source: Getty Images.

Tanger Factory Outlet Centers

Shopping malls were not the business to be in when COVID-19 forced lockdowns last year. Some mall operators that were already struggling before the pandemic filed for bankruptcy, while others muddled through.

Tanger survived the pandemic. Solid liquidity was part of the equation, as was the fact that Tanger's outlet malls are largely open air. An investment in Tanger as COVID-19 raged last year was a bet that the company would make it through to the other side.

With more than half of U.S. adults now fully vaccinated, shoppers are returning in force to Tanger's outlet centers. Traffic to Tanger's properties reached 97% of 2019 levels in the first quarter of 2021. Rent collections have also normalized, with Tanger collecting 95% of contracted rents for the first quarter. The company allowed tenants to defer some rents early in the pandemic and now has collected 83% of those deferred rents.

In terms of liquidity, Tanger's in good shape. It raised nearly $130 million during the first quarter by selling new shares, allowing it to pay down a term loan and partially redeem some senior notes. The company has no significant debt maturities until the end of 2023.

Tanger expects to produce as much as $1.57 in per-share adjusted funds from operations (FFO) this year. Factored into this guidance is the expectation of store closures and lease adjustments related to tenant bankruptcies and restructuring. Fully recovering from the pandemic may take years, but Tanger is on the right track.

The company trades at just 11 times the high end of its adjusted FFO guidance, so the stock could surge as shoppers flock to the company's open-air outlet centers.

Nordstrom

Department stores were also hit hard by the pandemic, but the best of the bunch could recover in a big way as consumers look to scratch their shopping itches after a year of restrictions and fear. Nordstrom's latest earnings report disappointed investors, but the numbers are moving in the right direction.

The company's sales soared 44% in the first quarter, no surprise given that stores were closed for half of the first quarter last year. Sales were down 13% compared to the same period in 2019, so things aren't quite back to normal yet. Digital sales accounted for 46% of total sales and were up 23% year over year.

Nordstrom reported a loss for the first quarter, but the company expects to be profitable on an operating basis for the year. The company sees sales soaring more than 25% in 2021, with an operating margin around 3%. Lower debt payments will help the bottom line -- Nordstrom redeemed some high-interest debt and issued lower interest debt in April, which will reduce its annualized interest payments by about $30 million.

Nordstrom had $377 million in cash and nearly $1 billion in total available liquidity at the end of the first quarter. The stock isn't particularly cheap relative to expected earnings, but it's historically cheap relative to sales. Analysts are expecting earnings to nearly double next year as the pandemic era comes to an end.

A strong comeback for Nordstrom isn't a guarantee, but the retailer is well positioned to benefit from a surge in in-person shopping as the pandemic draws to a close.

Timothy Green owns shares of Nordstrom and Tanger Factory Outlet Centers. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tanger Factory Outlet Centers, Inc. Stock Quote
Tanger Factory Outlet Centers, Inc.
SKT
$17.82 (3.60%) $0.62
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$24.37 (0.54%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.