In the world of high-stakes stock trading, GameStop (GME) and Clover Health Investments, Corp. (CLOV) have emerged as intriguing players. However, recent developments suggest that while GameStop’s allure is at times dimmed due to repeated strategic missteps, Clover Health is garnering attention as the new David ready to take on Wall Street’s Goliaths.
GameStop: A Fading Star
Once the poster child of the retail investor revolution, GameStop’s stock has been through a rollercoaster. The initial frenzy was fueled by the infamous “Roaring Kitty” and a determined army of retail traders on platforms like Reddit’s WallStreetBets. The goal was to trigger a short squeeze, forcing institutional short-sellers to buy back shares at skyrocketing prices.
However, GameStop’s management has repeatedly doused this fervor by issuing new stock offerings. The latest blow came just this week when the company issued a whopping 75 million shares. This move flooded the market with shares, providing short-sellers ample opportunity to cover their positions and crushing the stock’s momentum. This isn’t an isolated incident; in June 2021, GameStop issued 5 million shares at-the-money, raising over $1 billion but stalling the short squeeze once again.
Such actions have led to a growing sentiment among retail investors that GameStop’s management is more focused on quick cash grabs than long-term strategic growth. Despite sitting on a significant cash reserve, the company appears to be struggling with innovative ideas to leverage this capital, leading to a perception of being cash-rich but growth-poor.
Clover Health: A Rising Contender
In stark contrast, Clover Health is emerging as a prime candidate for a short squeeze. CLOV entered the spotlight during the meme stock and SPAC craze of 2021, backed by prominent investor Chamath Palihapitiya. Initially, it saw a surge, hitting $28 per share, but soon after, the stock was heavily shorted, bringing it down significantly.
Despite this, Clover Health has transformed into a stronger company than it was in 2021. The company is on the brink of profitability, a remarkable turnaround from its previous losses. In 2023, Clover Health reported revenues of $2.033 billion, competing in a market where leading companies generate almost $1 trillion annually, indicating ample room for growth. Notably, Clover Health beat revenue projections in its most recent earnings report, highlighting its improving financial health and operational effectiveness. This outperformance is a strong signal to the market of Clover Health’s robust growth trajectory and potential for future profitability.
A key differentiator for Clover Health is its advanced AI-driven software, Clover Assistant. The recent announcement that this proprietary healthcare AI will be sold to other healthcare companies as a SaaS product, with expected profit margins over 60%, has added a new dimension to its business model. This strategic move positions Clover Health as not just a health insurance provider but also a technology leader in healthcare.
Moreover, CLOV has almost as much cash on hand as its whole market capitalization, underscoring how its value has been beaten down to artificially low levels by short-sellers. This discrepancy highlights the potential for significant upward movement if a short squeeze were to occur.
Adding to its credibility, Chelsea Clinton, daughter of former President Bill Clinton and former Secretary of State Hillary Clinton, has been on Clover Health’s Board of Directors since February 2017. Her presence on the board brings significant visibility and underscores the company’s commitment to strong governance and strategic oversight.
However, CLOV is still heavily shorted, with 45 million shares shorted out of a float of 376 million shares. The stock has been hovering perilously above the $1 mark, crucial for maintaining its NASDAQ listing. Just yesterday, after nine consecutive days of closing above $1, institutional shorts managed to push the stock down to close at $0.98, narrowly missing the compliance threshold by less than $0.02 in what many perceive as a deliberate attempt to manipulate the stock.
The Parallels and the Future
Retail investors make up 58% of Clover Health’s ownership, a significant portion that demonstrates strong grassroots support. However, these retail investors are being bullied by a few institutional short-sellers who are manipulating the stock to their advantage. This manipulation not only undermines the market’s fairness but also hampers the company’s ability to achieve its true market potential.
The narratives of GME and CLOV share striking similarities—both stocks have seen massive short interest, both have rallied due to retail investor enthusiasm, and both have faced institutional pushback. However, while GameStop’s management has repeatedly undermined its squeeze potential, Clover Health stands out as a company fundamentally improving its business prospects.
The potential for a short squeeze in CLOV in 2024 is substantial. With a large percentage of shares shorted and a relatively small float, any significant positive momentum could trigger a rapid price increase, similar to the initial GME surge. What CLOV needs now is a resurgence of retail investor interest, akin to the WallStreetBets community’s efforts for GameStop, to combat institutional short-sellers and realize its potential.
In this David vs. Goliath battle, Clover Health could indeed be the next stock to watch, offering a compelling narrative of growth, innovation, and the enduring power of the retail investor. If the retail investor community rallies behind CLOV, it could not only spark a significant short squeeze but also challenge the dominance of institutional manipulators, restoring some balance to the stock market.
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