In a recent episode of The Rank on Fool Live, Fool.com contributor Matt Frankel, CFP, and chief growth officer Anand Chokkavelu ranked 10 of the most popular meme stocks in the market. While many didn’t impress either of the experts, Clover Health Investments (NASDAQ:CLOV) was Frankel’s clear No. 1. In this clip, recorded on June 25, he explains why.
Matt Frankel: Well, it’s a business I’m interested in owning, but I am not interested in owning a meme stock, I’m just not. Especially that one I think the day I sold it it went from, I think, $14 to $28 in one day. When it got there, I’m out, I’m good. Not one of my highest-conviction holdings like you said. I decided to sell when it was around $20, I paid $6 a share for it.
Anand Chokkavelu: Nice.
Frankel: More than a triple in, I think, three months. I was totally happy to take the money and run, and if it goes back down to a reasonable price, then I might buy it again. But it’s a very real business, the most heavily shorted on my list anyway which is why I think you saw such violent price action in these; 37% short interest which is very, very high. That’s like not GameStop at its peak, but it’s pretty high. Clover, it came crashing down to earth.
Chokkavelu: It was over 100%, right?
Frankel: Right. Clover peaked at about $29 a share, I wish I would have timed it a little better when I sold it. But it’s since come crashing down more than 50% to under $14 a share, as I was doing research for this. Trades for about $5.6 billion market cap. It’s actually the only one on my list that’s down year to date. It started off the year a whole lot higher than it was because if you remember what was going on at the beginning of the year, it wasn’t the meme stock trade, it was the SPAC bubble that was driving it higher. Clover Health, call it a double meme stock, because it was one of the SPAC boom stocks, then it came crashing down when the SPAC boom faded, then the meme stock rally fueled it higher. Clover is a Medicare Advantage provider, they’re branching out through original Medicare plans. Their whole thing is they use technology to bring the costs down, they claim to be 17% cheaper than the average competitor, when it comes to administering Medicare Advantage Plans. That’s something that seniors need, and if you could do it cheaper, that’s a pretty good business model. They are growing pretty quickly, their member count went up 18% over the past year, revenue jumped 21% over the past year. They are actually pretty cheap for a high-growth meme stock at this point. They are trading for less than seven times sales which is pretty cheap for a high-growth tech stock these days, especially for one of the Chamath SPACs. Virgin Galactic trades at an infinite multiple of sales because it doesn’t have any. I know Opendoor is trading at a pretty high multiple of revenue, SoFi is as well. It’s pretty reasonably valued for a tech stock. They fell a few months ago because of some short-seller attacks. Hindenburg Research put out a short seller report that revealed that there was, as we see investigation, I believe it was that they were not revealing to shareholders. It might turn out to be immaterial which is what it’s really looking like, but that was enough to scare investors. That’s what dropped shares into the $6-$7 range when I ended up buying in. They’ve handled the meme stock rally well. They’ve announced recently that they’re planning on raising capital. They announced that they are going to sell about $500 million of shares at these elevated levels provided that the higher stock price holds out, I’m all in favor of that move, this is still a money-losing business. They lost a little over $48 million in the last quarter. They have $720 million of cash that they got from the SPAC merger, and the PIPE that went along with it. But that’s still a pretty high rate of cash burn. They’re going to have to raise capital to keep their growth going unless they can figure out a path to profitability, which I think is my biggest reservation about this stock. But the Medicare addressable market size is absolutely enormous, which is, I think, why this is my No. 1. It’s a high-risk play. There is a lot of execution risk here, but there’s a lot of reward if they get it right. That’s why I ranked that my No. 1.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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