It’s been three weeks since Reddit (NYSE:RDDT) priced its shares at $34 for its initial public offering. Reddit stock gained 48.4% in its first-day return. By Mar. 26, it traded as high as $74.90, more than double its IPO price.
One reason RDDT stock did so well early in its run as a public company was the launch of options for the community platform company. Approximately 90,000 options traded on Mar. 25, the first day they were available.
“The action is on the call side and collected around the upside,” Reuters reported comments from Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories. “With the stock trading higher on Day One, this feels like speculation for higher moves.”
So far in April, the daily options volume for Reddit stock has really fallen off, from 82,357 on Apr. 1 to 32,154 on Apr. 8.
It’s clear that easy money has been made on RDDT stock. If you’re thinking about options as a way to get in on the Reddit action, you might consider options plays from these three stocks, which have similar market capitalizations but better profit potential.
Bellring Brands (BRBR)
Bellring Brands (NYSE:BRBR) is behind nutrition food and beverage brands Premier Protein, Dymatize, PowerBar, etc.
In the past five years, it’s grown sales from $854 million in 2019 (September year-end) to $1.67 billion in 2023, a compound annual growth rate of 18.3%. In terms of profits, it has grown its operating income by 15.3% annually over the same period.
Bellring’s stock isn’t cheap. It trades at 46x its trailing 12-month adjusted earnings per share and 30x the 2024 estimate of $1.60. Bellring expects revenues to grow by 12% at the midpoint of its guidance, to $1.87 billion in 2024.
While it’s slower than in previous years, double-digit growth of mature brands is never bad.
If you’re looking for an option play, I like the Dec. 20 $52.50 call that expires in 255 days. The down payment is less than 20%. If its shares increase by 10.1%, you can exercise your right to buy 100 shares of BRBR stock.
Applied Industrial Technologies (AIT)
Applied Industrial Technologies (NYSE:AIT) dates back to 1923 when it was known as the Ohio Ball Bearing Company. Based in Cleveland, it changed its name to Bearings Inc. in 1953 and, more recently, in 1997, to its current name.
Today, the industrial products distributor has more than 570 locations in several countries and offers its customers more than 8.8 million SKUs (stock-keeping units).
The company became a public company in 1953 and traded on the American Stock Exchange until switching to the NYSE in January 1965 under the symbol BER. It switched the symbol to APZ in 1997, after changing its name, and again in July 2000, to AIT.
Since switching to the AIT symbol, its shares have appreciated by 14.9% annually, more than double the S&P 500.
As I write this, the May 17 $195 call has an ask price of $7.90, a down payment of 4.1%, which is reasonable. Trading in the money, its share price needs to increase by 3.2% over the next 38 days for you to consider exercising your right to buy 100 AIT shares.
I like its chances of going up more than 15% in 2024.
UFP Industries (UFPI)
UFP Industries (NASDAQ:UFPI) is a Michigan-based supplier of lumber for three markets: retail (42% of 2023 revenue), packaging (26%) and construction (32%). Founded in 1955, it went public in 1993. Its shares have appreciated by 13.7% annually over these 30 years.
I first recommended UFPI stock in October 2020, when it traded at around $58. It’s up 106% since, 147% better than the S&P SmallCap 600 index. My rationale was simple: the growth in home improvement jobs by do-it-yourselfers drove higher revenues.
In September 2022, I did so again, suggesting that its plan to grow the percentage of annual sales from new products beyond 10% would do wonders for its business.
Due to the slowdown in new housing construction and slower home improvement demand from consumers due to higher interest rates, the company’s sales and earnings took a step back in 2023.
However, it believes it’s positioned to benefit when interest rates fall later this year and into 2025.
Over the next five years, it expects to grow annual sales by 7% to 10% while generating an average adjusted EBITDA margin of 12.5%.
On the date of publication, Will Ashworth 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.
