Sell Palantir stock? This money manager thinks it’s time

00:00 Speaker A

What’s a big noisy universe of stocks out there? Welcome to goodbye or goodbye. Our goal here to help cut through that noise to navigate the best moves for your portfolio. Today we’re dissecting valuations. I’m here with Tom Hayes, Great Hill Capital chairman and managing member. You’re bullish on Alba Marl, Tom. So that’s where we’re going to start. We’re going to go through the reasons why you like this name, which by the way, it hasn’t had kind of rough, you know, year to date. It’s been kind of rough, but we’re going to walk through why you say this one’s a buy. So let’s go through the points. First point, huge operating leverage.

00:50 Tom Hayes

Yeah, this is a big deal. So they’re a lithium producer. They’re the lowest cost. They’re one of the largest lithium producers. So right now, lithium prices go in five to eight-year cycles. We’re at the trough of the cycle, kind of fell into the EV narrative that people don’t want EVs anymore, but that’s that’s really not the story here. As the price turns as it it does every five to eight years, even pre EVs, we’re talking 40 years, this has been going every five to eight years, the cycle. The amount of operating leverage that Alba Mar has to benefit as prices go up is astounding. And in the short term, they’re they’ve got ample liquidity to to ride through that trough while their competitors will fall away at the way side.

01:44 Speaker A

All right, second reason, you say this one’s a buy, demand growth.

01:50 Tom Hayes

Yeah, uh, so the EV story is predominantly a China story. China has 60% of the EV market. They’re growing in leaps and bounds. This is an unnatural subsidized market that’s going to continue. It’s an initiative of the government. US by uh, by contrast, only has 10% of the EV market. But that’s not the source of the actual growth for lithium. Uh, it is energy storage systems. Okay? That’s expected to have, uh, demand from 1.2 million metric tons to 3.2 million metric tons by 2030. Alba Mar is going to be the key beneficiary of that growth.

02:41 Speaker A

Final reason you say to pile into this one, dividend aristocrat.

02:47 Tom Hayes

Yeah, they’ve been raising the dividend every single year for 30 years plus, that makes them a dividend aristocrat. Uh, stable balance sheet, $3.1 billion of liquidity. Uh, the market is expected to rebalance by 2026. And when they rebalance, it’s it’s, you know, the stock is down materially. We do turnarounds. My nickname is turnaround Tom. So this is going a three to five year play. Uh, this stock from current levels, it’s trading around $55 to $60. Uh, could go back up to $150 once the cycle returns and the operating leverage, uh, uh, benefits. And you’re locking in a yield at current low levels. So you’re getting a high yield on the stock, it’s below 3%, but, uh, not only will you lock in that high yield, but they’ll continue to increase the dividend every single year. Similar to what Buffet did with Coca-Cola in 1989 and he gets more dividends than his basis every single year. Uh, you know, 20, 30 years later.

04:07 Speaker A

All right, turnaround Tom, but here’s the thing. So viewers are watching this right now before they commit capital. What are some downside risks they need to think about here?

04:20 Tom Hayes

Yeah, I think, uh, the biggest downside risk would be if the Chinese government did an about face and they said we’re no longer going to subsidize our green initiative. It’s a very low probability, but but some of that demand is from the unnatural subsidies and that government initiative that’s going to continue. Uh, and we think it’s part of the of their domestic consumption, uh, plan for 2030. They want 70% internal domestic consumption. So I don’t see that happening, but that would be a risk.

05:00 Speaker A

All right. So that’s your buy. Let’s move to the name you don’t like. And I like this one. I like this one because people have very strong feelings about Palantir, not a fan. Let’s go through these reasons as well. Stock’s overvalued.

05:19 Tom Hayes

Yeah, look, 83, it’s $324 billion market cap on $3.9 billion of sales, uh, 83 times sales, uh, 200 something times earnings. So you’re effectively, look, if you believe in Palantir and they certainly do have a defensible mode, they’re going to do great things. The question is, how much of those great things that they’re going to do over the next decade are you already paying for today? Current valuations, you would have to grow revenue at a 50% compound annual growth rate for the next 10 years to justify the current valuation.

06:30 Speaker A

All right, bullet point number two. So it’s too rich. The second reason.

06:36 Tom Hayes

Yeah, so 50% of the stock, uh, little more than that is owned by retail investors. If that sentiment turns like we saw with the meme stocks, whether it was AMC, high valuation, not really on the basis of current fundamentals, GameStop, etc. When they fall, they fall fast. When they exit, they exit all at once. So you have some risk there.

07:03 Speaker A

And the final point here, the reason you’d say avoid it, aggressive competition.

07:09 Tom Hayes

Yeah, there’s no question, uh, you’ve got, uh, data bricks, you’ve got Microsoft, you’ve got AWS, you’ve got all these companies coming into, uh, the the arena. Uh, I would say another red flag has been the insider selling, $125 million in the last 30 days alone. The chief technology officer officers selling like like his pants are on fire. I mean, unless the guy wants to buy a $120 million house, I don’t know what he needs all that cash for. So, uh, it tells me maybe it’s gotten a little ahead of itself. The other thing I don’t like, uh, is that they’ve diluted their owners, uh, and increased the share count by four X over the last six years. So even if they continue to do that, if they keep issuing stocks to to management in abundant amounts, uh, what do you what what is your slice of the pie going to look like if you buy today and they add and they four X the share count again over the next five to six years.

08:28 Speaker A

Now, before turnaround time, I let you go. The last thing I need to know though, where could you be wrong? What what are some upside risks I need to think about?

08:38 Tom Hayes

I think the biggest risk, uh, they certainly have a quality product. It’s a defensible product. They have a mode around their product. Um, the biggest risk would be is if the defense department decided to double government spending on defense, which given the budget talks, given the the initiative of this administration, is probably a lower probability, but not a non-existent probability with everything we’ve seen over the weekend. Uh, nothing is out of the question in which case Palantir would be a beneficiary. Government would spending would go up, their contracts would probably go up.

09:21 Speaker A

And we should know this stock has been a monster Tom. It’s up about 85% this year already. It was up around last I checked 480% over the past 12 months. What a run. But there it is. Portfolio recommendations buy Alba Marl, avoid Palantir. Thank you so much, Tom. Thank you for the viewers as well for watching. goodbye or goodbye. More market domination right on the side.