Palantir Crushed Earnings: These 3 Stocks Could Be Next

Key Concepts

• AI Application vs. AI Enabler: Palanteer is positioned as an “AI applier” – a company that utilizes AI to solve problems for clients, while others are focused on providing the underlying AI infrastructure.
• Forecasted P/E Ratio: Louie Navellier emphasizes using forecasted, rather than current, Price-to-Earnings ratios for valuation.
• Positive Balance Revisions: A key metric for identifying promising stocks – companies experiencing upward revisions to their earnings estimates.
• Institutional Accumulation: The consistent buying pressure from institutional investors is considered a strong indicator of a stock’s safety and potential.
• Data Center Boom: The continued growth in data center infrastructure is driving demand for related components and services.
• Ver Ruben Chip: Nvidia’s next-generation chip, promising significant improvements in speed and energy efficiency.
• Naked Call Options: The practice of selling call options without owning the underlying stock, potentially creating downward pressure on the stock price post-earnings.

Palanteer’s Recent Performance & Market Shift

Palanteer’s recent earnings report resulted in a significant stock price increase due to “incredible guidance” and “stunning sales.” Louie Navellier characterizes Palanteer as an “AI applier,” distinguishing it from companies simply providing AI infrastructure. The stock had faced headwinds in the fourth quarter due to short-selling activity by Michael Burry (who held put options on Palanteer and Nvidia), creating a negative narrative around its valuation. However, Navellier argues that using forecasted P/E ratios (currently around 38x looking two years out) demonstrates the company’s growth potential is intact. He attributes the recent positive shift to earnings season acting as “judgment day,” validating companies with strong fundamentals. Woodward (WWD) is highlighted as another example of a recent earnings “pop,” benefiting from a strong aerospace market driven by Boeing orders and space exploration. Both Palanteer and Woodward experienced “positive balance revisions” contributing to investor interest.

Three Stocks to Watch Ahead of Earnings

Navellier presents three stocks poised for potential earnings-driven gains, mirroring Palanteer’s recent success. These companies share strong fundamentals and momentum.

1. Vertiv (VRT)

• Business: Manufactures water-cooled rack systems for data centers.
• Growth: Orders are up 20-35% quarter-over-quarter and 50-65% year-over-year, driven by the ongoing data center boom.
• Historical Performance: Has experienced substantial growth over the past five years (up over 800%, almost 850%).
• Key Criteria: Navellier’s eight-factor fundamental model prioritizes earnings surprises (at least 15%), increased guidance, positive analyst revisions, and sales growth alongside margin expansion.
• Investment Strategy: Navellier describes his approach as “surfing the institutional investors,” capitalizing on their herd-like behavior. He typically holds stocks for over a year, allowing the analyst community to catch up to their potential.

2. MCO (EME)

• Business: Produces essential components for data centers.
• Characteristics: Described as a “blue chip” stock – more stable and predictable than high-growth names like Vertiv or Palanteer.
• Performance: Steady and reliable, with predictable earnings.
• Portfolio Allocation: Navellier recommends a diversified portfolio with 60% in conservative stocks, 35% in moderate-risk stocks, and 10% in high-risk stocks. EME falls into the conservative category.

3. Nvidia (NVDA)

• Business: Leading manufacturer of GPUs (Graphics Processing Units) crucial for AI applications.
• Growth: Sales are up over 70%. The upcoming Ver Ruben chip promises five times faster speed and ten times greater energy efficiency.
• Market Position: Dominates the AI chip market with no significant competition. Navellier highlights Jensen Huang, Nvidia’s CEO, as a capable leader.
• Challenges: Nvidia’s size (larger than the combined stock exchanges of the UK, France, Germany, and Italy) and the prevalence of market makers writing call options can suppress post-earnings gains. These market makers may not want options exercised, requiring them to purchase stock at potentially inflated prices.
• Investment Rationale: Despite recent price declines (down ~11% over the last few months), Navellier remains bullish, citing strong sales and earnings momentum. He’s been invested in Nvidia twice, achieving over 4,000% returns on his second investment. He views Nvidia as a “monopoly” and allocates 18% of his managed accounts to the stock.
• Recent Price Dip Explanation: The recent dip in Nvidia’s stock price was attributed to a narrative influenced by Michael Burry’s short position (put options) in the fourth quarter.

Investment Philosophy & Diversification

Navellier emphasizes the importance of following “money flow” – identifying where institutional investors are allocating capital. He believes that consistent institutional accumulation is the key indicator of a stock’s safety. He advocates for diversification, recommending a portfolio allocation of 60% conservative, 35% moderate risk, and 10% high risk. He also stresses the importance of betting on successful leaders like Alex Karp (Palanteer) and Jensen Huang (Nvidia). He follows 80 stocks, providing his subscribers with comprehensive research through Investor Place.

Conclusion

The discussion centers on identifying companies poised for earnings-driven growth, particularly those benefiting from the AI boom and the expanding data center infrastructure. Navellier’s strategy focuses on identifying companies with strong fundamentals, positive balance revisions, and momentum, while also acknowledging the influence of institutional investors and market dynamics. He advocates for a diversified portfolio and emphasizes the importance of following where the money is flowing. The three highlighted stocks – Vertiv, MCO, and Nvidia – represent a range of risk profiles, offering investors opportunities to participate in the growth of the AI ecosystem.