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. (NASDAQ: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 (NYSE: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.