Clover Health Has a Bleak Present and Possibly a Bleaker Future
With the power of meme stock fans demonstrably weakening and Clover Health (NASDAQ:CLOV) continuing to face an SEC investigation, the longer-term outlook of CLOV stock remains negative.
As a result, I urge investors to sell the company’s shares.
Clover Health has become a favorite of the social media-oriented investors, i.e. the meme stock fans.
CLOV stock has been on fire in recent weeks, propelled by these investors.
For example, on June 12 Seeking Alpha reported that Clover’s shares had jumped 67% over the preceding week, representing, by far, the week’s largest gain within the healthcare sector. Seeking Alpha said that Clover had “meme-stock fever.”
But now, in-line with my recent predictions, the “meme-stock” investors are losing their power.
Jumping Ship on CLOV Stock
There are multiple indications of this trend. For example, on June 18, Seeking Alpha asked, “With major cities now fully opening from lockdown and capacity restrictions and the summer’s allure of outdoor events, is the pandemic appeal of playing the market waning?”
The website then answered its own question by quoting DataTrek as saying that Google searches of the term “invest” and “buy stocks” had declined sharply.
Meanwhile, despite the huge rise of CLOV stock earlier this month, the days of “meme stocks” doubling and tripling within a week seem to be largely behind us.
And even Clover itself has lost momentum recently. Since peaking over $23 on June 8, the shares will open today at around $13.
Meanwhile, the recent ebbing momentum of cryptocurrencies, which appears to be continuing, is likely to harm the riskiest meme stocks, since many of the same people appear to be investing in both types of assets.
As a result, I expect the meme stocks, including CLOV stock, to underperform going forward.
The SEC Probe Makes Clover a Very Risky Stock
There are at least two other big reasons to stay far away from CLOV stock. Specifically, Hindenburg Research wrote a very worrisome report about the company and the SEC has opened a probe into it.
The shares of Lordstown Motors (NASDAQ:RIDE) –another company that was hit with that one-two punch — have tumbled in the last few months. It recently warned that it might go out of business within a year, and it’s in turmoil after its CEO and CFO resigned on June 14.
The charges that Hindenburg has leveled against Clover are very serious. As I pointed out in a previous column, among other allegations, Hindenburg wrote that the U.S. Department of Justice was investigating Clover.
According to Hindenburg, the probe involves ““at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals.”
Given Hindenburg’s report and the SEC probe, Clover could easily become the next Lordstown Motors sooner rather than later.
On June 10, Bank of America cut its rating on Clover to “underperform” from “neutral.”
The firm warned that Clover’s “growth trajectory” did not justify its valuation. It noted that the company expects the growth of its “Medicare Advantage membership” to slow. According to the firm, that dynamic decreases the certainty of the company’s future performance.
The Bottom Line on CLOV Stock
Clover’s shares were boosted by the meme stock phenomenon, but now the power of meme stock investors is declining, and that trend should continue going forward.
Meanwhile, the SEC’s probe of Clover makes CLOV stock very risky. Given these points, the shares are a sell at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
