Beware of These 2 Meme Stocks in the Healthcare Industry
While subreddit r/WallStreetBets’ huge wagers against short sellers and the resulting short squeezes have helped several stocks skyrocket in price, many of those stocks have witnessed subsequent price declines on...
While subreddit r/WallStreetBets’ huge wagers against short sellers and the resulting short squeezes have helped several stocks skyrocket in price, many of those stocks have witnessed subsequent price declines on their fundamental weakness. Two cases in point are meme stocks in the healthcare space Clover Health Investments (CLOV) and Ocugen Inc. (OCGN). They look extremely risky, given their weak financials. So, we think they are best avoided now. Read on.
The healthcare industry strove to survive the COVID-19 pandemic by developing vaccinations and addressing critical market needs for protective gear and secure healthcare facilities. The moves propelled the growth of healthcare companies. In addition, with technological advancements and increasing demand for improved healthcare products and facilities, the industry has enormous potential to grow. Investors’ interest in this industry is evident in the Vanguard Health Care Index Fund ETF’s (VHT) 28.3% returns over the past year.
However, not all stocks in the healthcare space have gained due to industry tailwinds. Following subreddit r/WallStreetBets’ (WSB) enormous success earlier this year in squeezing short-sellers out of their positions in GameStop (GME), the forum targeted several other fundamentally poor stocks with heavy short interest and benefitted by inducing short squeezes in them also.
Clover Health Investments Corp. (CLOV) and Ocugen Inc. (OCGN) are two WSB favorites in the healthcare sector. But given their fundamental weakness, we believe investors should avoid these two meme stocks. They are rated an F (Strong sell) in our proprietary POWR Ratings system.
Clover Health Investments Corp. (CLOV)
CLOV is a Medicare advantage insurer in the United States. It is headquartered in Franklin, Tenn. The company offers preferred provider organization and health maintenance organization health plans for Medicare-eligible consumers through its software platform.
In August, the international securities and consumer rights litigation company Scott+Scott Attorneys at Law LLP commenced investigating whether some directors and executives of Clover Health Investments violated their fiduciary obligations to SCH III and its shareholders. This turn of events could negatively impact CLOV’s stock price in the near term.
For the second quarter, ended June 30, 2021, CLOV’s operating expenses increased 299.1% year-over-year to $594.33 million. Its operating loss came in at $181.86 million, compared to a $23.17 million operating profit in the prior-year period. Its net loss amounted to $317.61 million, compared to $5.40 million in net income in the second quarter of 2020. And CLOV reported a negative adjusted EBITDA of $138.72 million, compared to $24.79 million in adjusted EBITDA in the year-ago quarter.
CLOV’s EPS is expected to remain negative in the current year. The stock has declined 43.9% in price over the past nine months and 3.7% over the past three months.
CLOV’s POWR ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CLOV has rated F for Stability and Sentiment, and a D for Value. Within the B-rated Medical – Health Insurance industry, it is ranked last of 11 stocks. To see additional POWR Ratings for Growth, Quality, and Momentum for CLOV, click here.
Ocugen Inc. (OCGN)
OCGN is a clinical-stage biopharmaceutical company that specializes in developing gene treatments to treat blindness. In addition, the Malvern, Pa.-based concern has strategic partnerships with CanSino Biologics Inc. for gene therapy co-development and production and Bharat Biotech for COVAXIN commercialization in the U.S. market.
Last month, Kahn Swick and Foti LLC announced that it was continuing to investigate OCGN. The investigation is focused on whether company executives and directors violated their fiduciary duties to shareholders or otherwise violated state or federal laws.
During the second quarter, ended June 30, 2021, OCGN’s operating expenses increased 651.2% year-over-year to $25.61 million. The company’s operating loss grew 660.8% from its year-ago value to $25.61 million, while its net loss surged 618.1% from the prior-year quarter to $25.95 million. The company’s loss per share came in at $0.13 over this period.
Analysts expect its EPS to remain negative in its fiscal year 2021. In addition, OCGN’s EPS is expected to decline 133.3% year-over-year to $0.07 million in the next quarter.
OCGN’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.
OCGN also has an F grade for Stability and Quality, and a D for Sentiment. OCGN is ranked #481 of 489 stocks in the F-rated Biotech industry. Click here to see the additional POWR Ratings for OCGN (Growth, Value, and Momentum).
CLOV shares rose $0.02 (+0.26%) in premarket trading Thursday. Year-to-date, CLOV has declined -53.37%, versus a 25.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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