Top 3 Stocks to Watch: Options Traders Bet on Big Gains

Key Points

• After the S&P 500 sold off last week, call option traders landed on three stocks to buy contracts on for a swift recovery.
• All backed by fundamental tailwinds, investors would find them worthy of a second look in the coming quarters. 
• Wall Street analysts agree there is double-digit upside potential in these names today. 

Investors had to deal with the sudden volatility in the stock market last week after the S&P 500 erased trillions in wealth. Not to mention the additional losses suffered by the Nikkei 225 (Japan’s version of an S&P 500), arguably initiating the downtrend altogether. The so-called “Carry Trade” was partially unwound after the Bank of Japan raised interest rates.

The fear of seeing less value and demand for U.S. dollars caused weekly volatility. However, some knew a swift recovery would be around the corner, as they started buying call options for three specific stocks. Call options give investors upside exposure to a stock, but only when it comes with leverage and an expiration date. Given that, if the direction or timing of the options contract needs to be correct, big call option bets should be something to watch.

Traders bet big on stocks like Hims & Hers Health Inc. NYSE: HIMS as the company released a stellar quarterly performance. They looked to buy into Waste Management Inc. NYSE: WM as a potential way to hedge against a weaker dollar ahead. Finally, there is EQT Co. NYSE: EQT as a way to make a side bet in Buffett’s new bullish view for the energy sector, though this time in natural gas.

Why Hims & Hers Stock Could Be the Perfectly Timed Options Trade

The stock now trades at only 72% of its 52-week high price, a discount brought about by nothing more than a bearish association with weight loss products. Shares of DexCom Inc NASDAQ: DXCM crashed by over 40% recently after the company announced lower demand ahead for its weight and diabetes watch medical devices.

Key word in devices: Trends in that market are going toward pills and medicine, not devices, which is why Hims & Hers is clear of any wrongdoing in that niche. More than that, according to the company’s latest presentation, only one out of ten product offerings has to do with weight loss, and those were introduced in December 2023.

Knowing that the business is still going strong despite what the weight loss m GLP-1 medicine may indicate, Wall Street analysts forecast up to 90% earnings per share (EPS) growth in the company for the next 12 months. But that’s not the only bullish thing to come out of Wall Street.

After the earnings release, those at Deutsche Bank decided to boost their price targets for Hims & Hers stock up to $23 a share, daring it to rally by as much as 44.6% from where it trades today. Knowing that the stock could reiterate its view in the market along with the S&P 500 relief rally soon, call option traders might have this right.

Rate Cuts and a Weaker Dollar: Why Waste Management is Poised for Higher Prices

Now that the Federal Reserve (the Fed) is expected to cut interest rates by the end of 2024, with the bets off for September according to the CME’s FedWatch tool, investors need to understand that this might bring on a weaker dollar ahead.

Since currency value is significantly driven by where interest rates go, rate cuts will also help out the biggest exporting companies in the United States, Waste Management being one of them. It isn’t the most exciting business model, but waste exports are one of the safest out there.

As long as the United States population stays busy, waste will be generated. Plastic, metal, and general waste are imports from countries like China, Turkey, and some in West Africa. As the dollar could become weaker, making American waste exports more affordable for these buyers, call options on Waste Management stock are a reasonable view.

Knowing that the stock could be one of the first to recover in this relief rally, others on Wall Street also expressed their optimism. Dimensional Fund Advisors (Waste Management’s largest shareholder) boosted its stakes by 11.1% as of August 2024, bringing its net investment to $473 million today.

EQT Stock: Analysts Predict Massive EPS Growth

After buying up to 29% of Occidental Petroleum Co. NYSE: OXY in a nine-day shopping spree, Warren Buffett made his bullish view of oil prices public. Analysts at Goldman Sachs also think the oil price could reach up to $100 a barrel this year.

However, one commodity has yet to rise along with oil, as its summer cycle low is still in full effect, but it is due to end shortly. Natural gas could make a swift comeback to outperform that of the S&P 500 after the recent sell-off, which is why options traders chose EQT stock.

And these traders aren’t alone. Wall Street analysts want to see up to 162.9% EPS growth for the company in the next 12 months, backing up price targets set by Scotiabank for $55 a share.

EQT stock would need to rally by as much as 76.8% from where it trades today to prove these valuations right. Realizing all of the potential upside, this stock carries up to $2.6 billion of institutional capital made its way into the company, mainly from those at the Bank of New York Mellon, who now hold up to $752.5 million for 4.6% ownership.