Clover Health (NASDAQ:CLOV) finished its first day of trading in early January with CLOV stock worth approximately $7 billion. It had just completed its merger with Social Capital Hedosophia III, the special purpose acquisition company (SPAC) sponsored by “Silicon Valley venture capitalist” Chamath Palihapitiya.
Today, as I write this, it’s worth approximately $1.94 billion, 74% less than it’s $7 billion valuation.
When I last wrote about Clover Health in early December, I suggested, “only the most speculative investors ought to be anywhere near this healthcare stock.” Since then, CLOV stock has lost another 9% as we approach the end of the year.
While CLOV stock is trading for pennies over $4, here are three similarly-valued stocks to buy for 2022.
Forget CLOV Stock — Buy This Instead
According to Finviz.com, there are 64 stocks with a market capitalization between $1.9 billion and $2 billion. My three picks grow sales, generate profits, and possess solid balance sheets. If you’re lucky, at least one will pay a decent dividend.
Ultimately, all three are, in my opinion, safer bets than CLOV in 2022.
Sonic Automotive (NYSE:SAH) is my first pick. It has a current market cap of $2 billion. Its stock is up 25.77% year-to-date (YTD), 258 basis points less than the S&P 500.
Sonic is one of the top automotive retailers in America. Its 119 dealerships are located in 17 states and represent more than 25 brands. In its latest fiscal year, it sold 93,000 new vehicles and 159,000 used vehicles, generating $9.8 billion in revenue. It expects to grow its revenue to $25 billion by 2025.
From a brand breakdown, luxury accounts for 55% of its sales with BMW, Mercedes, and Audi accounting for 71% of its luxury vehicle sales.
In 2021’s third-quarter, its revenues grew by 20.6% to $3.07 billion. Its net income rose 46.9% to $84.7 million and its total debt is $1.97 billion or 56% of its total assets.
The company’s Echo Park used car business should be a big contributor as it pushes to $25 billion in sales by 2025.
The Second Alternative to CLOV Stock
Sally Beauty Holdings (NYSE:SBH) business and the stock bounced back in 2021. That’s great news for long-time shareholders. Up 42.8% YTD, SBH’s five-year return looks a little better as a result. However, it’s down 29% on a cumulative basis over the past 60 months.
Back in May 2017, I compared Sally Beauty and Ulta Beauty Holdings (NASDAQ:ULTA). ULTA was on a bit of a roll, while SBH was stumbling and bumbling. So, wisely, I said ULTA was the better stock to buy. Ulta is up 28.2% since — it’s also had its ups and downs — while SBH is up 3.8% over the same period.
However, I thought Sally Beauty’s restructuring at the time was gaining traction. While Covid-19 didn’t help its business, its most recent results are encouraging.
For all of fiscal 2021, its sales increased 10.3% to $3.87 billion with 10.2% same-store sales growth. Its operating earnings grew 44.2% in 2021 to $622.7 million, and it managed to reduce its debt by $420 million in the past year. That puts its long-term debt at $1.38 billion or 48% of its total assets.
On Oct. 1, board member Denise Paulonis took over as chief executive officer (CEO) of the company. She is tasked with growing sales and profits after previous CEO Chris Brinkman thoroughly modernized its beauty business during his six-year tenure.
A Final Possibility
My final alternative is Goldman Sachs BDC (NYSE:GSBD). It was founded in 2012 to make debt and equity investments in middle-market companies — defined as earnings before interest, taxes, depreciation and amortization (EBITDA) earnings of $5 million to $200 million — and merged with Goldman Sachs Middle Market Lending Corp. (MMLC) in October 2020.
As a result of the merger, GSBD’s asset base more than doubled to $3.5 billion. The MMLC shareholders received 1.1336 GSBD shares for every share of MMLC.
GSBD had $3.11 billion in investments and $401.8 million in unfunded commitments for 111 portfolio companies across 37 industries at the end of September. Approximately 84% of its assets are first lien loans with an average yield of 8.4%.
It’s essential to remember that this is an investment focused on income rather than capital appreciation. The BDC’s current quarterly distribution of $0.50 yields a very high 10.4%.
Do not buy GSBD if you’re expecting capital appreciation. However, if you’re willing to take on more risk than a guaranteed investment, it’s an excellent way to boost your income portfolio.
None of these three alternatives to CLOV stock are a sure thing. But, that said, I don’t believe they possess the same amount of risk as Clover Health.
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On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
