This Basket of Stocks Is Up 85% in 1 Year -- but Could Still Be a Bargain

Just over a year ago, I wrote an article where I suggested a basket of five real estate investment trusts, or REITs, that focus on retail properties. At the time (about three months into the COVID-19 pandemic), there was tremendous uncertainty about the future of retail. We had no idea whether a safe and effective vaccine would ever be developed, and for all we knew, capacity limitations and social distancing would be around for years.

As a result, some of the best-run retail REITs were trading for fire-sale prices. But I invested with two main principles in mind -- that people want to get out of their houses to shop, eat, and be entertained, and that science would figure out how to effectively fight the pandemic.

Image source: Getty Images.

The "retail isn't dead" basket today

Fast forward a year, and we're starting to see that play out. And as a result of the faster-than-expected reopening, many retail REITs -- including the "retail isn't dead" basket, as I called it -- have performed quite well. Here's a rundown of the five stocks and how they've performed over the past year.

Data source: yCharts. Performance as of 6/29/2021.

Are these still good stocks to buy now?

Despite the strong performance, there are solid cases to be made that there's still significant upside potential for all of these companies as the reopening progresses.

For starters, Simon Property Group still trades for roughly half of its all-time high, despite very solid performance from its business. Its properties are still more than 90% occupied, and Simon's base rent actually increased over the past year. At the current price, Simon trades for just 13.4 times the midpoint of its expected 2021 FFO (funds from operations -- the REIT version of "earnings").

Tanger Factory Outlet Centers surprised investors when it reported in January that customer traffic was virtually the same as pre-pandemic levels. Although its occupancy fell from 97% to less than 92% in 2020, Tanger is making some smart moves that could drive shareholder value going forward. It recently partnered with Fillogic to develop micro-distribution centers at Tanger Properties, and has seen success with leasing larger vacant spaces to new tenants such as Dicks Sporting Goods, which recently opened its first outlet at a Tanger property.

Realty Income is the "laggard" of the group, but just because its business wasn't nearly as impacted by the pandemic. In a nutshell, most of its tenants are "essential businesses." But I've called Realty Income my favorite all-around dividend stock in the market, and still feel that way.

EPR Properties owns experience-driven properties, with about half of its portfolio consisting of movie theaters, so it's not surprising the pandemic took a major toll on the business. However, thanks to the recent "meme stock" craze, top tenant AMC Entertainment is in solid financial shape and should help EPR reach its goal of stable cash flow and dividend reinstatement in the second half of the year, both of which could be major catalysts for its stock price.

Finally, Seritage Growth Properties is the highest-risk stock on the list, but also has tons of upside potential if things go well. Seritage's business model is to gradually redevelop a portfolio of old Sears properties, and it's been able to raise some cash to buy it some runway, which is the main reason for its performance over the past year.

But new CEO Andrea Olshan has aggressive plans to dispose of 40-50 non-core assets quickly to raise a ton of cash to pursue the most valuable opportunities. If she's successful, Seritage could end up being worth several times its current value.

Invest for the long run

There's a solid case to be made that all five of these retail REITs still have lots of upside potential as the U.S. continues to normalize. But over the short term, they can be quite volatile and unpredictable. If you invest, do so because you plan to measure your returns in years, not weeks or months.