Rising number of lawsuits for illegal practices, poor analyst sentiment, and recent rally on the meme craze make Clover Health (CLOV) best avoided now. On the other hand, the health insurance industry’s solid growth prospects backed by the assurance of the Affordable Care Act (ACA) position shares of fundamentally sound health insurers UnitedHealth (NYSE:UNH), Anthem (ANTM), Cigna (NYSE:CI), and Humana (NYSE:HUM) well for a solid upside in the upcoming months.Healthcare technology and insurance company Clover Health Investments, Corp. (CLOV) went public on January 8, 2021, after merging with Social Capital Hedosophia Holdings Corp III (IPOC), a special-purpose acquisition company (SPAC) backed by the venture capitalist Chamath Palihapitiya. However, on February 4, Hindenburg Research published a report revealing that CLOV didn’t disclose of it being under an active investigation by the U.S. Department of Justice for issues including deceptive sales practices and undisclosed third-party deals, before the merger.
Such negativity surrounding CLOV and high short interest in the stock attracted the attention of the subreddit WallStreetBets. A lot of discussion on the stock on the online forum and consequent action of retail traders made the stock skyrocket lately. This meme stock hit its 52-week high of $28.85 on June 9. While the stock gained 84.2% over the past month and closed yesterday’s trading session at $12.56, Wall Street analysts expect the stock to hit $9.67 in the near term, indicating a potential downside of 23%. This reflects analysts’ concerns over its poor financials and illegal practices. Therefore, we believe the stock is best avoided now.
However, the health insurance industry has witnessed a huge number of customers taking policies upon pandemic-driven awareness. Many health insurers have upgraded their policies with various premium options, attractive reimbursement policies, adding coverage of various diseases into plans, and favorable contracts with healthcare providers to capitalize on the growing demand. Moreover, the Affordable Care Act backed by the Biden administration in ensuring lower healthcare costs and expanded insurance coverage makes the prospects bright for the industry. The global health insurance market is expected to grow at a 5.5% CAGR over the next seven years to reach $3.04 trillion by 2028.