We recently compiled a list of the 10 New Stocks Reddit’s WallStreetBets Is Buying. In this article, we are going to take a look at where Clover Health Investments, Corp. (NASDAQ:CLOV) stands against the other WallStreetBets-approved stocks.
The surge of the Internet and the easy access to financial information, courtesy of the personal computing revolution, means that investing is no longer limited to the professionals. While Wall Street of the 1950s and onward was made of traders relying on hand made graphs of daily stock price movements to decipher long term trends, now, anyone with a computer and an internet connection has access to similar and more sophisticated tools.
This has also led to the rise of retail investing, which first made its mark during the coronavirus pandemic. Between 2020 and 2021, more than thirty million brokerage accounts were opened in the US, and the low interest rates coupled with coronavirus stimulus checks led to these traders accounting for 15% of the market’s trading volume in September 2020. Data from investment bank Morgan Stanley shows that retail traders tend to prefer well known consumer facing stocks, and crucially, the bank’s proprietary methodologies also show that in the five years between 2016 and 2021, stocks that garnered interest from retail investors ended up outperforming those without it.
Building on this, the pandemic and the surge of information in today’s age have also shifted the dynamics of how America views wealth preservation. A fresh survey from Gallup shows that while real estate continues to dominate as Americans’ favorite investment regardless of their income bracket, stocks come in second place for middle and high income families. This preference for equities dropped after the Great Recession of 2008 which wiped out some of the biggest companies in the world after risky bets on mortgage securities shattered Wall Street’s public image. According to Gallup’s data, the percentage of Americans who own stocks is the highest in 2024 since 2007 – or before the global economic crisis. Stock ownership stood at 52% of those polled – an all time low – in 2013 and 2016.
It slowly picked up and sat at 55% in 2020, and has risen every year since then to a post 2007 high of 62% in 2024. In fact, the last time stock ownership was higher than it is right now was in 2004 when 63% of Americans owned stocks during an era when interest rates were relatively low and the housing market was booming – economic conditions that are on a completely different spectrum than what we’re experiencing right now.
Building on this, the divergence between retail investors and hedge funds came to the forefront of the investing world during the meme stock mania that saw the former pump up video game retailing and entertainment chain stocks as they rallied on social media and particularly Reddit’s WallStreetBets, this trend continued in 2023. Data from S&P shows that in October when market sentiment about interest rates and the economy was at its lowest, retail investors sold off $15.64 billion in stocks for their largest monthly outflow since 2021. However, at the same time, the hedge funds appeared to smell blood. In a classic illustration of Warren Buffett’s mantra of being greedy when others are fearful, the hedge funds bought $5.56 billion in stocks. Their three favorite sectors were real estate, utilities, and materials, with real estate and utilities witnessing the inflows after smart money flew out in the prior month. For some great Warren Buffett quotes, you can check out Warren Buffett’s 35 Best Quotes About Business, Investing, and Life.
Judging by this, it appears that retail investors are driven by their economic perceptions instead of setting up their portfolios during a downturn. This is also evident in Charles Schwab’s Trader Sentiment Survey released in February 2024. The bank’s data reveals that 52% of retail traders planned to move more money into stocks during Q1 2024, which marks a 7 percentage point sequential gain. This also coincides with their view of the economy, as 48% think that the US will avoid a recession in 2024 and 53% are bullish for the stock market.
With this context and as retail traders start to become bullish once again, we decided to take a look at how their previous bets have performed. The GameStop short squeeze of 2021 brought the Reddit subreddit WallStreetBets into the limelight and made Roaring Kitty a global celebrity. We covered some WallStreetBets stocks in 2021 and 2023, and in this piece, we’ll analyze how the top 2021 stocks have performed since then. If you’re interested in similar content, we also evaluated Cathie Wood’s stock performance as part of our coverage of 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood.
Our Methodology
For our list of stocks, we took a look at our 2021 coverage of Forget AMC and Gamestop: 10 New Stocks Reddit’s WallStreetBets Is Buying and evaluated how these stocks have performed since June 2021. The stocks are re-ranked according to their share price percentage performance.
For these stocks, we also mentioned hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An older Medicare-eligible consumer smiling happily while receiving healthcare services at a clinic.
Clover Health Investments, Corp. (NASDAQ:CLOV)
Share Price Performance Since July 2021 Start: -89.15%
Number of Hedge Fund Investors In Q1 2024: 12
Clover Health Investments, Corp. (NASDAQ:CLOV) is a healthcare company that provides coverage and technology services to patients and physicians. It is another firm that utilized the relatively shorter route of using a SPAC firm to go public in 2020. A little known fact about Clover Health Investments, Corp. (NASDAQ:CLOV) is that it was also another stock part of the meme stock mania of 2021. Its shares first dropped in 2021 after well known short seller Hindenberg Research claimed that the firm’s software offering Clover Assistant was under a Justice Department investigation. Clover Health Investments, Corp. (NASDAQ:CLOV) announced the day that it was under an SEC investigation. Following the disclosure, the stock. bled 46% until mid May, when hungry retail investors pumped up its price by 101% until early June. Later during the year, Merrill Lynch downgraded the stock and claimed that the firm was overvalued compared to its growth trajectory. Clover Health Investments, Corp. (NASDAQ:CLOV) also announced a $300 million stock offering in November 2021, and this didn’t bode well due to dilution concerns. Clover Health Investments, Corp. (NASDAQ:CLOV)’s revenue also fell by 41% annually in 2023 to $2 billion – removing the final crutch of revenue growth from the stock price.
However, Clover Health Investments, Corp. (NASDAQ:CLOV) did have some good news for investors during its Q1 2024 earnings call where management shared:
We have therefore, significantly improved our guidance for the full year 2024 to a range of positive $10 million to $30 million. Our profitability performance was driven by continued outperformance in our insurance offering fundamentals, including revenue growth and Medic management, as well as durable reductions in our adjusted SG&A. For insurance revenue, we are proud that we delivered strong year-over-year revenue growth of 8%, while also simultaneously expanding margins. This is a continued step forward in our commitment to grow revenues in a sustainable way. Improvements came from a strong focus on Clover Assistant product advancement, operational enhancements to improve the accuracy of our risk adjustment submissions, and a focus on member retention.
We’re proud of these improvements. And as a result, we are also raising our full year insurance revenue guidance to be between $1.3 billion and $1.35 billion.
Overall CLOV ranks 6th on our list of the WallStreetBets-approved stocks to buy. You can visit Forget AMC and Gamestop: 10 New Stocks Reddit’s WallStreetBets Is Buying to see the other WallStreetBets-approved stocks that are on hedge funds’ radar. While we acknowledge the potential of CLOV as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CLOV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
