This High Risk / High Reward Stock Just Broke Out

We recently started a series called “Penny Stock of the Day”. These ideas are geared for 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 American health care company, Clover Health Investments Corp (NASDAQ: CLOV).

Clover Health Investments Corp operates as a medicare advantage insurer in the United States. The company through its Clover Assistant, a software platform that provides preferred provider organization and health maintenance organization health plans for medicare-eligible consumers. It also focuses on non-insurance businesses.

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

Latest 10-k report:  https://sec.report/Document/0001801170-22-000015/

Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for CLOV in the last 3 months, the stock has an average price target of $4.00, which is nearly 34% upside from current levels.

Source: TipRanks.com

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • Corporate Insiders Bought Shares Worth $252.0K in the Last 3 Months.

    Insiders | Source: TipRanks.com

  • Hedge Funds Increased Holdings by 57.2K Shares Last Quarter.

    Hedge Funds | Source: TipRanks.com

  • Clover director Chelsea Clinton purchased 100,000 shares of CLOV stock on March 3. Clinton’s recent transaction amounted to $252,530.

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

Bullish Indications

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

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

#3 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.

#4 Bullish RSI: The RSI is above 50 and moving higher, indicating possible bullishness.

#5 Bullish Stoch:  The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.

#6 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 is a possible bullish indication.

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

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

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 $4.70. If it closes above that level, the second target price is $6.00.

Stop Loss: To limit risk, place a stop loss at $2.30. Note that the stop loss is on a closing basis.

Our target potential upside is 47% to 88%.

For a risk of $0.90, our first target reward is $1.50, and the second target reward is $2.80. 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 $587.8 million, $136.4 million, and $363.7 million for the years ended December 31, 2021, 2020, and 2019, respectively.

    CLOV – Consolidated Statements of Operations and Comprehensive Loss

  2. Clover was fined for misleading marketing practices by the Centers for Medicare & Medicaid Services (CMS). The fine was issued after Clover’s repeated failure to amend misleading statements about its plan offerings.
  3. Since February 2021, Clover has received subpoenas from the SEC related to certain disclosures and aspects of its business as well as certain matters described in an article issued on February 4, 2021, by Hindenburg Research LLC.
  4. According to the article by Hindenburg research,
    1. Clover has not disclosed that its business model and its software offering, called the Clover Assistant, are under active investigation by the Department of Justice (DOJ).
    2. Much of Clover’s sales are driven by a major undisclosed related party deal and misleading marketing targeting the elderly.
    3. Clover has a thinly-disclosed subsidiary called “Seek Insurance”, whose activities are also under investigation by the DOJ.
  5. Prior to founding Clover, CEO Vivek Garipalli owned 3 New Jersey hospitals through a company called CarePoint Health. CarePoint was publicly lambasted for price-gouging; its hospital charged the highest prices for emergency room treatment in the entire country.
  6. Despite being a loss-making company, the executives are being paid significant compensation. Notably, the total compensation for the company’s CEO, Vivek Garipalli for 2021 amounted to a whopping $389 million.

    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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