We recently started a series called “Penny Stock of the Day”. These ideas are geared towards traders with an extremely high risk appetite.

Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.

Penny Stock of the Day: Clover Health Investments, Corp. (NASDAQ: CLOV)

Today’s penny stock pick is the healthcare technology company focused on Medicare Advantage plans, Clover Health Investments, Corp. (NASDAQ: CLOV).

Clover Health Investments, Corp. provides medicare advantage plans in the United States. The company offers preferred provider organization and health maintenance organization plans to medicare-eligible individuals. It operates Clover Assistant, a software platform to execute strategy by enabling physicians to detect, identify, and manage chronic diseases earlier than they otherwise could.

Website:  https://www.cloverhealth.com/

Latest 10-k report:  https://investors.cloverhealth.com/static-files/9575735b-9739-4b2b-88bf-67e16ff009f7

Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for CLOV in the last 3 months, the stock has an average price target of $4.75, which is nearly 53% upside from current levels.

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • The company’s AI-powered Clover Assistant platform has shown positive outcomes, with 18% lower hospitalization rates and 25% lower 30-day readmission rates for congestive heart failure patients, enhancing its value proposition.
  • Hedge Funds Increased Holdings by 1.3M Shares Last Quarter.

    Hedge Funds | Source: TipRanks.com

  • Clover’s focus on AI-driven healthcare solutions, including Clover Assistant and its subsidiary Counterpart Health, positions it as a disruptor in the Medicare Advantage and physician enablement markets.
  • Rumors of potential SaaS deals with major healthcare players like Humana, Molina, and Summit through Counterpart Health.
  • Clover is debt-free and holds a significant cash reserve, equal to nearly one-third of its market cap, providing financial stability and flexibility for growth initiatives.

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Falling Wedge Pattern: The daily chart shows that the stock has been forming a falling wedge pattern for the past several months. These are marked as purple lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.

CLOV – Daily Chart

#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.

#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.

#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.

#5 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This looks like a good area for the stock to move higher. The stock is also trading above its 200-week SMA, indicating that the bulls are in control.

CLOV – Weekly Chart

#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for CLOV is above the price of $3.20.

Target Prices: Our first target is $4.20. If it closes above that level, the second target price is $5.00.

Stop Loss: To limit risk, place a stop loss at $2.60. Note that the stop loss is on a closing basis.

Our target potential upside is 31% to 56%.

For a risk of $0.60, our first target reward is $1.00, and the second target reward is $1.80. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 3x more potential upside than downside.

Potential Risks / Red Flags:

  1. The company has a history of net losses. CLOV incurred net losses of $46.3 million, $210.1 million, and $254.6 million for the years ended December 31, 2024, 2023, and 2022, respectively.

    CLOV – Consolidated Statements of Operations

  2. The health insurance sector faces regulatory scrutiny on pricing practices and potential government-led reforms, such as expanded public healthcare options. Inflation in medical costs could erode profitability.
  3. Clover has experienced underwhelming customer growth, with an average 3.6% year-on-year decline in customers over two years, suggesting increasing competition or market saturation in the Medicare Advantage space.
  4. The rising medical costs (higher BER), regulatory pressures, or disappointing Q2 results could limit upside and keep CLOV volatile.
  5. The company has a history of Securities Class Actions, Derivative Litigation, and Investigations. There is also a Bylaw Litigation titled Taylor v. Clinton, et al., Case No. 2024-0305 (Del. Ch.).
  6. The company has geographical risk. As of December 31, 2024, approximately 91% of CLOV’s members, most of whom were in two metropolitan areas, were residents of New Jersey.
  7. Despite being a loss-making company, the executives are being paid significant compensation.

    CLOV – Executive Compensation

As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!

Happy Trading!

Trades of the Day Research Team

READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.

Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.

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Source: Trades of the Day