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Let the Dust Settle Before Taking a Position in Clover Health

As I’m writing this, shares of Clover Health (NASDAQ:CLOV) are churning wildly. The average daily volume of CLOV stock is around 20 million shares, but on the afternoon of April 19 it surpassed 167 million shares and it’s not done for the day yet.

stethoscope on a stock chart representing healthcare stocks to buy
Source: Shutterstock

The price of the stock is also gyrating. At one point it was down to $9.17 for a sizable daily loss, but it also lurched to a peak of $10.57 for a huge but temporary gain.

Clearly, CLOV stock isn’t for the timid or the risk-averse. Even if you feel that you can handle the wicked price action, I wouldn’t recommend taking a large position in this one.

So, if you’re prepared to ride this untamed stallion — and delve head-first into the weird world of short squeezes — I invite you to risk your precious sanity and (but not too much of your capital) as we attempt to analyze Clover Health.

The Backstory of CLOV Stock

Let’s catch our breath now and rewind a bit. Back in October 2020, Clover Health 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 we have “CLOV stock” in its place. As you may be aware, Social Capital Hedosophia Holdings III was sponsored the now-famous Chamath Palihapitiya.

He’s sometimes known as the SPAC king as he has led no fewer than six of them. And, this was among Palihapitiya’s biggest SPAC’s yet as Clover Health was valued at a whopping $3.7 billion at the time of the merger deal.

CLOV/IPOC stock traded close to $10 prior to the October merger announcement. The post-merger-announcement share price moved quickly later in the year, however.

On Jan. 4, the stock reached a 52-week high of $17.45. Then a multi-month drawdown commenced, with the share price dipping into the $7’s a number of times.

Innocent, or Guilty?

As recently as April 15, CLOV stock was only slightly above $7. During the following trading sessions, however, the buyers and sellers engaged in heated tug-of-war.

What’s going on here, exactly? It’s not as if Clover Health is a red-hot electric vehicle or biotechnology company.

Indeed, the company seems rather staid at first glance. To put it in simplified terms, Clover Health specializes in providing Medicare Advantage health plans.

Primarily, the company offers insurance to seniors through Clover Health’s software platform, known as Clover Assistant.

That sounds innocent enough, right? It’s hard to imagine that anyone would object to what Cover Health is doing.

But of course, looks can be deceiving. Thus, in early February of 2021, Hindenburg Research asserted that Clover Health is under investigation by the U.S. Department of Justice (DOJ). Hindenburg’s claims were indeed scathing:

“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.”

Short Squeeze in the Works?

With stocks making massive moves based on social media talk, even the hint of a short squeeze can send trading volumes and share prices soaring.

That’s quite possibly what’s happening with CLOV stock lately. I won’t even try to predict how the Hindenburg accusations will turn out, and the short-squeeze buzz surrounding CLOV stock is only complicating the situation.

Reportedly, Reddit users have been discussing Clover Health because analytics firm S3 Partners apparently stated that the short percent of float of Clover’s shares is 144.73%.

That’s some serious short interest, assuming it’s real. In today’s marketplace, though, it might not matter what’s real and what’s not anymore.

As you might expect nowadays, the fires were stoked by social-media chatter such as this snippet of a tweet from @ACInvestorBlog: “$CLOV this level 144% of short interest is the perfect FUEL for a MASSIVE SHORT SQUEEZE like $GME ….. 144% IS INSANE.”

I’ll let you fact-check this if you’re inclined to do so. Or better yet, let the chips fall where they may and reconsider Clover Health when the market’s ready to weigh its actual value as a company.

The Bottom Line

Frankly, you don’t have to do anything with CLOV stock right now. There are times to profit from Wall Street’s craziness, but this isn’t one of them.

Instead, you can put this one on your watch list and come back to it later. I feel that Clover Health is probably a pretty good company — if that matters in 2021.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/let-the-dust-settle-before-taking-a-position-in-clov-stock/.

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