Speaking exclusively with TheStreet, former NYSE trader and TheStreet Pro contributor Stephen 'Sarge' Guilfoyle highlighted Palantir (PLTR) as his single best trade. He cited the company's strong financials, clean balance sheet, and growing customer base as reasons for optimism, despite the apparent valuation risk.
Related: Single Best Trade: Wall Street veteran picks Palantir stock
Catch more of Sarge's latest stock picks and long-term market advice here.
Full Video Transcript Below:
CONWAY GITTENS: Well, joining us is Sarge. He's a contributor at TheStreet Pro. I hear you come bearing gifts today with your single best trade. What is it.
STEPHEN GUILFOYLE: Well, I'll tell you what I'm willing to buy for myself, for my children and my grandchildren is Palantir Technologies (PLTR) for the folks at home.
CONWAY GITTENS: For the folks at home, they may not know what that company does. So tell us.
STEPHEN GUILFOYLE: It's kind of difficult to explain. There are big data software company that's been really a contractor to the US government from their beginnings. Now they're spreading into the corporate side, the commercial side. Their customer account is growing like a weed. I think it grew something like 69% year over year last quarter. Their revenues are growing a little more slowly. My thinking is that the revenues are going to catch up to the customer account, not the other way around. It might take a little while. If you look at the stocks chart, you might even see for those of you that they can see these things, a descending triangle, which would be a little bit bearish. But that's OK because there's a gap down to about $19. That's where the gap fills. That's, you've seen me buying it because I tell you what, all you folks are my articles when I'm buying it, that's where I expect to buy to get aggressive. I expect that gap to fill. I expect to load up around 19 and maybe not take off, but take off by the time my children and my grandchildren are a little bit older.
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CONWAY GITTENS: So why do you like this stock?
STEPHEN GUILFOYLE: It's because it's demand for what it does, I believe, is going to be inelastic. All right. They provide security, they provide surveillance. They provide big data analysis at a level that really only the CEO, Alex Karp, can explain effectively. I believe that they are well ahead of other software providers, of other big data providers on the AI side. And as long as they can maintain that lead or at least keep the pace up. I mean, you've all seen with Dan Ives has said about this stock, he's raved about this stock, not that Dan's always right, but he's right a lot. He's a five star analyst at TipRanks for a good reason. And I have a lot of the same feelings for this stock as he does. I have other picks, too, for you folks, if you want. I mean, there are three stocks I'm willing to buy.
CONWAY GITTENS:But let's stick with Palantir for right now, because I know that you are bullish on the company's cash flow, right, yes so explain to us why that is a buy for you?
STEPHEN GUILFOYLE: Well, the free cash flow for the firm last quarter, I think it was $148, $149 million, something like that. The balance sheet is clean as a whistle, $3.8 billion in cash, no debt. The firm is set up where it can sustain even if it has two losses for quite a while. But it's been profitable now for, I think, GAAP profitable for six consecutive quarters. Technically, it's eligible for the S&P 500. I don't think they're about to shove it in there, but technically they're eligible. The cash flows are positive. The firm is profitable, revenues are growing. I think they're going to accelerate. Maybe not right away, maybe not this year, but I believe they're going to accelerate into the future. Fundamentally, this is as sound a firm at this size that I can find.
CONWAY GITTENS: So talk to me about some of the risks here. I know they came out with their earnings in May. They gave a full year revenue forecast that was a little bit lighter than what Wall Street was expecting. I think the stock dropped like 15% right after that. I took a look. Deutsche Bank has a sell on it. Davidson, neutral. Citigroup, neutral. HSBC has a hold. RBC, underperform. So what is the risk to this stock?
STEPHEN GUILFOYLE: It's a valuation risk. If the stock if the stock doesn't grow into its big boy clothes like I think it will, it's overvalued. It's plain and simple. So it's a valuation risk. The sell side analysts have to acknowledge that and they are, some of them not. You know, I mentioned Dan Ives. He's not. But some of them are. But you have to buy these stocks when you think when you view the profitability, the revenue growth is not at its peak, but the peak is being priced in. One of them has to move towards the other for our sake. For my kids sake, let's hope that I'm right and that the revenue growth and the profitability grow into the larger size valuation.
CONWAY GITTENS: And what about the risk. You mentioned that a huge chunk of its revenues comes from government spending, right. How much of a risk is that to this earnings potential?
STEPHEN GUILFOYLE: For the short term. It's crucial. I mean, the U.S., like many developed economies, is facing a fiscal crunch probably at some point. But this firm has put itself into a position like where I said where it's almost inelastic. The army and the Air Force use it for a number of things. So I think it's core U.S. government business is stable. It might only grow in the teens percentage wise, but it's the commercial side. As corporations move more into the surveillance and the analytical conclusions that they're looking for, the outcomes, the solutions to their problems that they're looking for, that can only be solved through right now with speed, through artificial intelligence and big data resolution. So that's why I think this stock, you can go out and buy Salesforce, you can go buy out and buy Snowflake if you love big data. And that's all you're interested in. But if you're interested in a smaller company that is doing the same thing, probably a little ahead of those peers in terms of technology and serving its country, I don't have a problem with that.
CONWAY GITTENS: And what about that cash flow issue. Are you bullish on the cash flow because they can then use that money to acquire other companies or to further expand the business. So talk to me about that.
STEPHEN GUILFOYLE: If they need to. But I think it's they have not spent a lot of late on capital expenditures. And this is a chance because they've built this up. I don't expect the dividend anytime soon. And I certainly don't want them buying back stock. But I do like the idea that maybe they can plow more money into capital expenditures because, you know, those bigger players that I just mentioned have to catch up to Palantir. So Palantir is going to have to spend to stay ahead. So they're going to have to stay cozy with the Nvidia's of the world and the AMD's of the world, because that's who's providing the brains for artificial intelligence.
CONWAY GITTENS: So there you have it. Sarge's top pick is Palantir, and he's our contributor at TheStreet Pro.
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