Chamath Palihapitiya loves this stock, but is it a buy?

Chamath Palihapitiya is a prominent venture capitalist, engineer and entrepreneur known for his significant contributions to the technology sector. Venture capitalists were certainly among the most important influencers of the post-pandemic era, when capital was being raised at what were ludicrous valuations in hindsight. With the Federal Reserve holding interest rates at zero and tech company valuations soaring as usage has grown from users with something better to do than scroll on their phones, Palihapitiya and others are becoming superstars in the investment world.

Chamath certainly made a killing as CEO of Social Capital, exiting a number of his special purpose buyout companies at skyrocketing valuations. Many argued that he sold many early investors with these moves, but he remained very much in one of the companies he seems to believe in the most.

His top stock to own is none other than Clover Health Investments, Corp. (NASDAQ:CLOV), an American healthcare technology company founded in 2014. Clover specializes in providing Medicare Advantage (MA) insurance plans. The company also operates as a direct contracting entity with the US government, managing care for Medicare beneficiaries in 11 states.

One of Chamath’s high-profile IPOs in 2021, CLOV stock went from a pre-SPAC IPO price of $10 per share to an all-time high of $28.85 per share. Today, CLOV stock is trading at about $4 per share, so those gains are gone.

However, with that said, let’s look at whether Chamath’s largest position is one that investors might want to consider right now.

Key points about this article:

• Chamath Palihapitiya is among the leading venture capitalists, having founded Social Capital and become a key player in the private equity firm space in the wake of the pandemic.
• Here’s what to make of his biggest current investment, and whether it’s a long-term move investors might want to consider right now.
• If you’re looking for action with huge potential, be sure to grab our free copy brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

The SEC probe is out of the way

Clover Health has been under scrutiny by regulators over undisclosed business practices that may have impacted the company’s stock price. However, the company recently reported thatt The SEC has concluded its investigation and no enforcement action would follow. This, unsurprisingly, sent CLOV stock into an impressive bullish move, and the company’s share price is up 320% at the moment, largely due to this key announcement.

Expanding regulations can have a negative impact on a company, and the longer these investigations take, the more pressure a particular company can feel. Apparently, Chamath believed in the company’s internal processes and believed that things would turn out positively. I thought about the lawsuit, Clover Health maintained transparency by updating investors in its filings, including its Form 10-Q for the quarter ended June 30, 2024.

Clover Health also reported better results, bringing in GAAP net income of $7.4 million. This is a significant turnaround from previous losses, making this stock compelling for investors. In addition, the company has revised upward its revenue guidance for 2024. These catalysts appear to be strong, and I wouldn’t be surprised to see the stock revalued even higher if the company can show a path to positive EPS in the short term.

New 52-week high

As mentioned, CThe Health darling’s recent results, combined with its SEC news, have really driven the company parabolic. The company beat earnings estimates by $0.01 EPS versus the consensus $-0.04 in its report on August 5, 2024. For the current fiscal year, Clover Health anticipates $-0.13 earnings per share on revenue of $1.4 billion, reflecting a 68.29% decline in EPS and a 31.32% decline in revenue. Next year, projections include -$0.12 on revenue of $1.47 billion, indicating year-over-year changes of 7.69% and 4.98%.

There are some questions about the likelihood of future earnings given the heavy investment required to continue to grow in its core markets and further advance its technology. But if the company is able to reduce its capital expenditures and improve its non-insurance operations, Clover Health could certainly be a unique growth at a reasonable price.

Additionally, like many other tech stocks, Clover Health is working to integrate artificial intelligence into its core business model. There are some who believe the company could widen its moat in this space by using AI tools to do so, but we’ll have to see how they ultimately impact the company’s bottom line. At this point, profitability seems to me to be a bigger concern than lack of investment in AI.

Clover Health could be a buy

Clover Health is certainly among the smaller-cap growth stocks that have seen a number of things going well of late. From a fundamental perspective, the company is performing best in a long time. And with regulatory overhead out of the way, this is a stock that could really see its valuation rise, especially if interest rates continue to fall.

That said, this is a stock with an excessive amount of risk that I wouldn’t be particularly interested in investing in. To each their own, but this is a stock that requires a much higher risk tolerance than I currently have.

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