Clover Health (NASDAQ:CLOV) stock is part of the Reddit tickers of 2021.
Those are the ones that can rally 300% without warning or reason. That however is doing it a disservice because it draws attention away from the company’s real prowess.
I’ve been pretty consistent with my opinions on CLOV stock and have no qualms about restating it today. Long term it will do well, especially when from a starting point near $10.
I don’t believe in the fear-mongering from certain parties like the headlines that broke out earlier this year.
I give credit to the company and its customers that they are not fake.
This is not likely the case of another Theranos. Time will be the ultimate judge, meanwhile, it remains a good long-term investment with short-term opportunities.
Own CLOV Stock Through the Reddit Madness
I’ve noted the same strategy twice already in April and July and both yielded profits.
In the first instance, CLOV saw quite a pop reaching $28. I am not suggesting this repeats now, but there are investors at these levels looking for higher prices.
If the stock markets are higher in the future, CLOV stock has a good runway ahead of it. Today my conclusion is the same: this stock has more upside potential than downside risk.
Going all in makes no sense especially in a stock that trades this wildly. Moreover, equity markets are breaking records inside very iffy macroeconomic conditions.
It’s not so much that the economy is struggling, in fact, quite the opposite. The government efforts to reflate business after the 2020 shutdown were too impressive.
They perhaps overshot with the stimulus program and are causing an inflationary environment. Everything is more expensive, but U.S. consumers are on a spree like never before. Businesses are flourishing and this is even evident in the CLOV stock.
It is still too new to dissect financially, but the quarterly revenue streams are increasing exponentially.
According to the TradingView data tables, second-quarter total revenues were 10 times that of last year’s fourth quarter. That is a strong statement about growth trends.
This renders looking for value an exercise in futility.
As long as this economy is doing this well, CLOV stock should continue to prosper. The only way the macroeconomic conditions deteriorate drastically is with a Black Swan event.
Unless something actually physically breaks in the financial or real estate markets, bears are in hibernation.
Look for Alternative Methods
But just in case they come out, easing into a position in Clover Health makes sense. I don’t deny that it is a speculative investment, but it is one that can exist in even moderate portfolios.
Going all in when there’s so much hype around it is not smart. I trust in the company’s ethics but not blindly. Therefore and at the risk of sounding cliche, I remain cautious with a bit of optimism.
At times when I’d like to own a company’s shares but need to leave some wiggle room, I use options. There I can sell put options instead of buying shares. I collect a premium up front just for the promise to buy the shares lower.
This would be a bullish trade that requires no out-of-pocket expense with about a 20% buffer.
The problem is that the short-term reaction to earnings is all about guessing. Short term, it is trader sentiment that reigns supreme, not actual financial results.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.