Clover Stock’s Recovery Could Reverse in the Short-Term

Clover Health (CLOV) company logo on a website with blurry stock market developments in the background, seen on a computer screen through a magnifying glass.

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If you bought Clover Health (NASDAQ:CLOV) a month ago, so far, your contrarianism has been amply rewarded. During this timeframe, CLOV stock has zoomed over 39% from around $2.62 per share to $3.65 per share. But this big jump in price has had little to do with its fundamentals, or with any news related to the company. Rather, it has entirely been the product of the overall rebound in the hardest-hit stocks since Mar. 15. This may be a sign it is not wise to buy today.

Why? If you recall, that is when the U.S. Federal Reserve (Fed) officially increased short-term interest rates and laid out its plans to engineer a “soft landing” to bring high inflation under control. This move has helped to assuage some worries among investors. With this, the market has slowly moved back into names they cycled out of from late fall through the winter. This includes this fast-growing yet unprofitable provider of Medicare Advantage plans.

Yet, in more recent days, this rebound has started to slow. Given that the Fed plans to release its latest meeting minutes on Apr. 6, this makes sense. Updates on the central bank’s rate hike and balance sheet reduction plans will heavily weigh on the market’s next direction. If the updates aren’t what investors want to hear, the late-March rebound could reverse course. In turn, it could cause CLOV stock to give back its gains related to this rally.

Again, there has been little news out of the company since it reported earnings in late February. There is not much for the stock to fall back on. Sure, you can argue that some positive news may be just around the corner. Next month, the company releases its next quarterly earnings report. If it can show that it is continuing to bring its too-high medical cost ratio under control, investors could view its number favorably. That is what happened following the February earnings report. In past coverage, I’ve argued that over a longer timeframe, as it gets out of the red, Clover could soar to prices well above what it trades for today.

Nevertheless, unless you have a long-term horizon, you may want to wait to buy it. The market’s direction has fueled its move from $2.62 to $3.65 per share. If the market dips from here in the short-term, CLOV stock will go down right with it. Even if you’re looking at it as a long-term investment rather than a short-term trade, you may still want to take your time before buying. A better entry point could emerge between now and its next earnings report.

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On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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