Wells Fargo's trade ideas for the third quarter

Wells Fargo has highlighted several stocks with significant catalysts for potential upside in Q3 2025, following the S&P 500's strong H1 rebound. Among its top tactical picks, energy firm Hess (HES) presents two distinct value paths: a Chevron merger closing could drive shares to $169 (14% upside), or a failed merger realizing the value of its Guyana asset could push shares to $184 (28% upside) from its current $143.32. Additionally, fast-casual chain Sweetgreen (SG), despite a 58% YTD decline, is deemed a compelling buying opportunity with a $19 price target (44% upside), as analysts anticipate sentiment improvement, multiple expansion from 26x to 35x 2026 EBITDA, and sequential improvements in cash flow and margins.

Analysis

Against the backdrop of a significant market rally in the first half of 2025, with the S&P 500 gaining nearly 11% in Q2, Wells Fargo has identified tactical Q3 opportunities with distinct catalysts. For Hess Corporation (HES), which has already advanced approximately 11% year-to-date, analysts project two separate paths to value creation. A successful merger with Chevron is expected to value Hess shares at around $169, a 14% upside from its recent $143.32 close. Paradoxically, a failed merger is presented as a more lucrative scenario, with the standalone value of its Guyana asset potentially driving the stock to $184, representing a 28% upside. In contrast, Sweetgreen (SG) is highlighted as a high-risk, high-reward turnaround play, with its stock having fallen 58% in 2025. Wells Fargo posits that current headwinds, including negative same-store sales and cash flow concerns, are transitory. The firm anticipates a weak Q2 report will serve as a 'de-risking event,' shifting focus to stabilizing business trends and margin tailwinds from operational efficiencies like its 'Infinite Kitchens'. The investment thesis hinges on a valuation multiple expansion from approximately 26x to 35x 2026 EBITDA, supporting a price target of $19 per share, or 44% potential upside.

Key Decisions for Investors

• Investors could consider Hess as a holding with two defined upside scenarios, noting that the failure of the Chevron merger is forecast to yield a higher valuation ($184/share) than a successful close ($169/share).
• For those with a higher risk tolerance, Sweetgreen offers a potential turnaround story, but it is critical to view the upcoming weak Q2 results as a potential bottoming signal before expected sequential improvements in cash flow and margins materialize.
• The primary catalysts to monitor for these positions are the outcome of the Hess-Chevron merger arbitration and Sweetgreen's Q2 earnings report for evidence of stabilizing sales and the materialization of margin tailwinds.