While most financial advisors will probably tell you not to fight the tape (which is solid guidance, I must say), sometimes you need to throw the book away and consider stocks to buy on short-term weakness. At this point, your advisor may suffer a panic attack, so use your discretion regarding the below ideas.
For one thing, we’re going to target names that suffered significant losses over the trailing five days from the Sept. 5 close, with the data coming from Barchart’s stock performance index. Second, I filtered for names that printed interesting options activity. I did this because the smart money may know something you don’t.
To be sure, people – even the experts – make mistakes. So, let me state upfront: stocks to buy on short-term weakness symbolizes a highly risky category. And you will find ideas here that may clash against your better judgment. I’m going to lay out the facts and let you decide if you want to pull the trigger. With that, below are the stocks to buy on short-term weakness.
Based in Redwood City, California, Box (NYSE:BOX) develops and markets cloud-based content management, collaboration, and file-sharing tools for businesses. Although a relevant enterprise given the acceleration of digitalized ecosystems, Box just hasn’t attracted much sentiment this year. Since the January opener, shares slipped almost 17%. Also, in the trailing five sessions, BOX tanked over 14%.
By arguably most measures, investors should run away from the struggling enterprise. However, it may be one of the stocks to buy on short-term weakness. For one thing, analysts peg BOX as a consensus moderate buy. Also, their average price target lands at $31.57, implying over 21% upside potential.
Second, BOX’s volatility smile or the implied volatility (IV) plotted at various strike prices for its options contracts point to heightened activity above the Sept. 5 closing price of $26.06. Specifically, from the $27 strike price, IV rises from 0.22 to 1.03 at $45.
In fairness, the IV stands at 1.24 at the $15 strike price, indicating that some traders are mitigating extreme downside risk. However, as analysts demonstrated, smart money also sees the potential for a bounce back.
Headquartered in Clayton, Missouri, Olin (NYSE:OLN) is a chemicals specialist. Per its public profile, the company primarily manufactures chlorine and sodium hydroxide. It also makes ammunition via its Winchester brand. Although broadly relevant, OLN failed to gain much traction this year, slipping more than 2%. In the trailing five sessions, OLN tanked more than 12%.
However, the chemicals specialist could be another idea for stocks to buy on short-term weakness. First, analysts believe in OLN, though it’s a contested moderate buy rating. Overall, the experts believe shares will hit $64.23, implying nearly 26% upside potential.
Looking at its options framework, OLN’s volatility smile suggests long-term optimism. On Tuesday, shares closed at $51.11. From the $55 strike price, IV rises from 0.27 to 1.11 at $85, suggesting interest in out-of-money (OTM) calls. Notably, institutional traders are selling $45 puts (with an expiration of Jan. 19, 2024), indicating a possible floor at that level. In fairness, IV is elevated at strike prices of $30 and $40, indicating possible downside mitigation. Still, the relevance of Olin might make it one of the stocks to buy on short-term weakness.
A simultaneously intriguing and risky enterprise, Enviva (NYSE:EVA) easily qualifies as the riskiest idea here for stocks to buy on short-term weakness. Operating as a sustainable wood bioenergy firm, Enviva appears compelling. However, InvestorPlace’s Noah Bolton points out that the company posted less-than-encouraging financials for its second quarter. Basically, it lacks a credible road to profitability.
If you need more proof of Enviva’s risky profile, analysts peg EVA as a moderate sell. This breaks down to one hold and one sell with significantly no buy ratings. However, the average price target still stands at $12, implying over 44% upside. That got me thinking about EVA’s volatility smile.
On Tuesday, EVA closed at $8.31. From the strike price of $10, IV steadily increases from 0.78 to 3.41 at the $70 strike. To be sure, some risk mitigation may be occurring, with IV coming in at 2.07 at the $2.50 strike. However, the magnitude of IV is higher for OTM calls. It’s possible, then, that traders anticipate some kind of bounce back.
Heck, even a dead-cat bounce from here would be massive. In the trailing five sessions, EVA lost 14% and since the January opener, it’s down nearly 83%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.