It was big news in October when next-generation Medicare Advantage insurer Clover Health (NASDAQ:CLOV) announced its plans to go public via a merger with special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings III. That company traded as IPOC stock, but that’s gone now and we have CLOV stock in its place.
Social Capital Hedosophia Holdings III was sponsored by none other than Chamath Palihapitiya. He’s sometimes known as the SPAC king as he has led no fewer than six of them.
The merger was a major event because of Palihapitiya’s reputation. Moreover, Clover Health was valued at a whopping $3.7 billion at the time of the merger deal.
Today, however, there are skeptics of Clover Health, including influential short seller Hindenburg Research. The question, then, is whether CLOV stock holders should abandon their positions in light of the criticism.
A Closer Look at CLOV Stock
CLOV/IPOC stock stayed close to the $10 level prior to the October merger announcement. That’s not unusual for SPAC stocks as the investing community is still waiting to find out which company will be the merger target.
Lately, many SPAC stocks have posted strong gains after a merger deal is revealed to the public. Interestingly, however, CLOV/IPOC stock dropped after the merger with Clover Health was announced.
The share price fell to $10 in November, but that’s not the end of the story. CLOV/IPOC stock spiked hard in December, reaching a 52-week high of $17.24 on Dec. 28.
Finally, on Jan. 8, the stock commenced trading as CLOV on the Nasdaq Exchange. The share price was close to $16 at that time.
The influence of a report issued by Hindenburg may have contributed to CLOV stock’s decline in 2021. On Feb. 5, the share price closed at $12.93. So now, let’s take a deeper dive into Clover Health and the skirmish with Hindenburg Research.
An Essential Service
Based in San Francisco, Calif., Clover Health specializes in providing Medicare Advantage health plans. The company primarily offers insurance to seniors through Clover Health’s software platform, known as Clover Assistant.
This software program uses machine learning to synthesize member-specific health data points, including claims, medical charts and diagnostics.
It’s an essential service, in my estimation. For example, Clover Assistant can provide physicians with suggestions for medications and dosages. It can also indicate if there may be a need for tests or referrals.
Ultimately, Clover Health’s platform could improve health outcomes for seniors. At the same time, it could save money by reducing unnecessary medications and laboratory testing.
In light of all this, you’d think that Clover Health would be a morally unassailable business, right? Not so fast, as Hindenburg Research has raised a serious objection.
Questioning Motives
In early February, Hindenburg asserted that Clover Health is under investigation by the U.S. Department of Justice (DOJ). Here’s what Hindenburg claimed:
“Clover has not disclosed that its business model and its software offering, called the Clover Assistant, are under active investigation by the Department of Justice (DOJ), which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals…”
Fortunately for CLOV stock holders, Clover Health is fighting back against the short seller. Specifically, the company took aim at Hindenburg’s motives in criticizing Clover Health:
“Given the market’s latest views on short sellers, we believe that Hindenburg, which takes pains to call out their altruism in saying that they are not short on CLOV stock, is foolheartedly seeking to redeem itself by posturing as a white knight of the financial markets.”
We’re living in a time when short sellers aren’t particularly popular. Hindenburg, Citron Research, Melvin Capital and others are sometimes viewed as notorious stock-price manipulators.
It’s entirely possible that Clover Health will prevail in its war of words against Hindenburg. Clover is providing a potentially lifesaving service, and health-care sector investors don’t need to drop their CLOV stock shares based on a short seller’s allegations.
The Bottom Line
It will take some time before we find out how the whole Clover-Hindenburg war of words plays out.
In the eyes of the investing community, Clover Health could win that battle in the long run. If you’re willing to stand by your position in CLOV stock while it’s down, you could be rewarded for your patience sooner or later.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
