Investing

Chamath Palihapitiya Loves This Stock, But Is It a Buy?

Chris MacDonald

Published: October 6, 2024 1:16 pm

Chamath Palihapitiya is a prominent venture capitalist, engineer, and entrepreneur known for his significant contributions to the tech sector. Venture capitalists were certainly among the top influencers of the post-pandemic era, when capital was getting raised at what were ridiculous valuations in hindsight. With the Federal Reserve keeping interest rates at zero, and valuations of tech companies skyrocketing as usage spiked from users with little better to do than scroll on their phones, Palihapitiya and others become superstars in the investing world.

Chamath has certainly made a killing as CEO of Social Capital, exiting a number of his special purpose acquisition company plays at sky-high valuations. Many have argued he sold many early investors out with these moves, but he has stuck around in a big way in one of the companies he appears 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 U.S. government, managing care for Medicare beneficiaries across 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 trades at around $4 per share, so those gains are all but gone. 

However, with that said, let’s dive into whether Chamath’s largest position is one growth investors may want to consider right now. 

Key Points About This Article:

• Chamath Palihapitiya is among the most notable venture capitalists, having founded Social Capital and becoming a key player in the special purpose acquisition company space following the pandemic.
• Here’s what to make of his largest current investment, and whether this is a stock long-term investors may want to consider right now. 
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

SEC Probe Is Out of the Way

Clover Health came under scrutiny from regulators over undisclosed business practices that may have impacted the company’s stock price. However, the company recently reported that the SEC had completed its investigation and would not pursue enforcement action. This unsurprisingly led CLOV stock to an impressive move higher, and the company’s stock price is up a whopping 320% on a year-to-date basis at the time of writing, largely due to this key announcement.

Regulatory overhang can impact a company in a very negative way, and the longer these investigations take, the more pressure a given company can feel. It looks like Chamath believed in the company’s internal processes and believed things were going to turn out positively. Thought the process, Clover Health maintained transparency, updating investors in its filings including the Form 10-Q for the quarter ending June 30, 2024.

Clover Health has also reported better results, bringing in $7.4 million GAAP net income. That’s a marked turnaround from previous losses, making this stock compelling to value investors. Furthermore, the company also revised its 2024 revenue guidance upward. These catalysts appear to be strong, and I wouldn’t be surprised to see the stock re-rated even higher, if the company can show a pathway to positive EPS in short order. 

New 52-Week High

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

There are some questions around whether future earnings gains are likely, given the heavy investment required to continue to grow in its core markets and advance its technology further. But if the company is able to wind down its Capex spending and improve its non-insurance operations, Clover Health certainly could be a unique growth at a reasonable price play here.

Additionally, like many other tech stocks, Clover Health is reportedly working on integrating AI into its core business model. There are some who believe the company could widen its moat in this space using AI tools to do so, but we’ll have to see how these ultimately factor into the company’s bottom line moving forward. At this point in time, profitability looks to me to be a bigger concern than a lack of AI investment.

Clover Health Could Be a Buy

Clover Health is certainly among the smaller-cap growth stocks that has seen a number of things go right of late. From a fundamentals perspective, the company is performing the best it has in a long time. And with regulatory overhangs out of the way, this is a stock that could really see its valuation move higher, particularly if interest rates continue to drop.

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