Stephen 'Sarge' Guilfoyle joined TheStreet's Conway Gittens to discuss why he's bullish on Palantir.
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00:00 - Well, joining us is Sarge.
00:02 He's a contributor at The Street Pro.
00:04 I hear you come bearing gifts today
00:06 with your single best trade.
00:09 What is it?
00:10 - Well, I'll tell you what I'm willing to buy for myself,
00:13 for my children and my grandchildren
00:15 is Palantir Technologies.
00:17 PLTR for the folks at home.
00:20 - For the folks at home,
00:21 they may not know what that company does.
00:23 So tell us.
00:25 - It's kind of difficult to explain.
00:27 They're a big data software company
00:29 that's been really a contractor to the US government
00:33 from their beginnings.
00:34 Now they're spreading into the corporate side,
00:36 the commercial side.
00:37 Their customer count is growing like a weed.
00:40 I think it grew something like 69% year over year
00:42 last quarter.
00:43 Their revenues are growing a little more slowly.
00:45 My thinking is that the revenues are gonna catch up
00:48 to the customer account, not the other way around.
00:50 It might take a little while.
00:51 If you look at the stock's chart,
00:53 you might even see, for those of you
00:55 that can see these things, a descending triangle,
00:58 which would be a little bit bearish,
01:00 but that's okay because there's a gap down to about $19.
01:04 That's where the gap fills.
01:05 That's, you've seen me buying it,
01:07 'cause I tell you all you folks in my articles
01:08 when I'm buying it,
01:09 that's where I expect to buy to get aggressive.
01:11 I expect that gap to fill.
01:13 I expect to load up around 19
01:16 and maybe not take off,
01:17 but take off at a time my children
01:19 and my grandchildren are a little bit old.
01:20 - So why do you like this stock?
01:24 - It's because its demand for what it does,
01:29 I believe, is going to be inelastic.
01:31 All right, they provide security,
01:32 they provide surveillance,
01:34 they provide big data analysis
01:37 at a level that really only the CEO, Alex Karp,
01:41 can explain effectively.
01:43 I believe that they are well ahead
01:45 of other software providers,
01:47 of other big data providers on the AI side.
01:51 And as long as they can maintain that lead
01:53 or at least keep the pace up,
01:55 I mean, you all see what Dan Ives has said about this stock.
01:57 He's raved about this stock.
01:59 Not that Dan's always right,
02:00 but he's right a lot.
02:02 He's a five-star analyst at SIP Ranks for a good reason.
02:04 And I have a lot of the same feelings
02:06 for this stock as he does.
02:08 I have other picks too for you folks if you want.
02:10 I mean, there are three stocks I'm willing to buy.
02:12 - But let's stick with Palantir for right now,
02:14 because I know that you are bullish
02:18 on the company's cash flow, right?
02:20 - Yes.
02:21 - Explain to us why that is a buy for you.
02:26 - Well, the free cash flow for the firm last quarter,
02:29 I think it was 148, 149 million, something like that.
02:32 The balance sheet is clean as a whistle,
02:34 3.8 billion in cash, no debt.
02:37 The firm is set up where it can sustain,
02:40 even if it has to, losses for quite a while,
02:42 but it's been profitable now for,
02:44 I think GAAP profitable for six consecutive quarters.
02:47 Technically, it's eligible for the S&P 500.
02:50 I don't think they're about to shove it in there,
02:51 but technically they're eligible.
02:53 The cash flows are positive.
02:55 The firm is profitable.
02:57 Revenues are growing.
02:58 I think they're going to accelerate.
02:59 Maybe not right away, maybe not this year,
03:01 but I believe they're going to accelerate into the future.
03:05 Fundamentally, this is as sound a firm
03:09 at this size that I can find.
03:11 - So talk to me about some of the risks here.
03:13 I know they came out with their earnings in May.
03:16 They gave a full year revenue forecast
03:18 that was a little bit lighter
03:19 than what Wall Street was expecting.
03:21 I think the stock dropped like 15% right after that.
03:24 I took a look.
03:25 Deutsche Bank has a sell on it.
03:26 DA Davidson, neutral.
03:28 Citi Group, neutral.
03:29 HSBC has a hold.
03:30 RBC, underperformed.
03:32 So what is the risk to this stock?
03:35 - It's a valuation risk.
03:36 If the stock doesn't grow into its big boy close,
03:40 like I think it will, it's overvalued.
03:43 It's plain and simple.
03:44 So it's a valuation risk.
03:46 The sell side analysts have to acknowledge that,
03:49 and they are.
03:49 Well, some of them, I mentioned Dan Ives, he's not,
03:52 but some of them are.
03:54 But you have to buy these stocks
03:56 when you think, when you view the profitability,
04:01 the revenue growth as not at its peak,
04:04 but the peak is being priced in.
04:05 One of them has to move towards the other.
04:07 For our sake, for my kids' sake,
04:09 let's hope that I'm right and that the revenue growth
04:12 and the profitability grow into the larger size valuation.
04:15 - And what about the risk?
04:16 You mentioned that a huge chunk of its revenues
04:20 comes from government spending, right?
04:23 How much of a risk is that to this earnings potential?
04:28 - For the short term, it's crucial.
04:32 I mean, the US, like many developed economies,
04:36 is facing a fiscal crunch probably at some point.
04:39 But this firm has put itself into a position,
04:41 like where I said, where it's almost inelastic.
04:43 The Army and the Air Force use it for a number of things.
04:45 So I think its core US government business is stable.
04:49 It might only grow in the teens percentage-wise,
04:51 but it's the commercial side.
04:53 As corporations move more into the surveillance
04:56 and the analytical conclusions that they're looking for,
04:59 the outcomes, the solutions to their problems
05:01 that they're looking for,
05:02 that could only be solved through right now with speed,
05:05 through artificial intelligence and big data resolution.
05:09 So that's why I think this stock,
05:12 you can go out and buy Salesforce,
05:14 you can go buy Snowflake if you love big data,
05:16 and that's what you're interested in.
05:17 But if you're interested in a smaller company
05:19 that is doing the same thing,
05:21 probably a little ahead of those peers
05:23 in terms of technology and serving its country,
05:26 I don't have a problem with that.
05:28 - And what about that cashflow issue?
05:30 Are you bullish on the cashflow
05:31 because they can then use that money
05:33 to acquire other companies or to further expand the business?
05:38 So talk to me about that.
05:40 - If they need to, but I think it's,
05:42 they have not spent a lot of late on capital expenditures.
05:46 And this is a chance because they've built this up.
05:48 I don't expect the dividend anytime soon.
05:50 I certainly don't want them buying back stock,
05:52 but I do like the idea that maybe they can plow more money
05:54 into capital expenditures because you know
05:56 those bigger players that I just mentioned
05:58 have to catch up the pound to you.
06:00 So pound to you is gonna have to spend to stay ahead.
06:02 So they're gonna have to stay cozy
06:04 with the NVIDIAs of the world and the AMDs of the world,
06:06 because that's who's providing the brains
06:09 for artificial intelligence.
06:10 So there you have it, Sarge's top pick is Palantir,
06:14 and he's our contributor at The Street Pro.
06:17 [BLANK_AUDIO]