It’s no secret that Palantir (NYSE:PLTR) stock had a tough year in the markets. When the dust finally settled, PLTR shares had fallen by 20% over the course of 2021.
But for the fundamentals-focused contrarian investor, Palantir is looking better and better. To be sure, Wall Street has soured on Palantir shares. Currently those analysts give it more sell ratings than buy ratings.
But if you believe that military stocks will rebound in 2022, Palantir is a strong contrarian bet.
Government Defense Spending and Palantir
A recent article in Wall Street Journal highlights difficulties facing the U.S. military industrial complex and how that is affecting stocks in the sector. It goes on to broadly note that military stocks are as cheap as they’ve been in the past eight years.
That doesn’t sound great for Palantir on the face of it. After all, if investors won’t push their capital toward military stocks, then Palantir will suffer too.
But here’s the rub, and the reason that a contrarian position in Palantir could make sense. The brunt of the negative outlook relates to decreased margins on big projects like Lockheed Martin’s (NYSE:LMT) F-35 program and weak outlooks from Northrop Grumman (NYSE:NOC) and L3Harris (NYSE:LHX).
The Pentagon has in the past lobbied for more spending on innovation rather than equipment like F-35 fighter jets. And that benefits Palantir for sure.
There’s A Larger Shift Underway For PLTR
The article goes on to note that smaller projects with higher margins are becoming more attractive. AI and software are specifically mentioned, implying Palantir has a great chance to capitalize.
Yes, PLTR stock is down because broadly military stocks are suffering. However, as I just explained, Palantir actually looks to be in a decent position. It isn’t an outdated manufacturing of war machines, but rather on the cutting edge of the military side.
That’s a good reason to give it a second look right now. Plus, there’s the benefit of strong fundamentals.
Palantir Is A Fundamentally Sound Investment
Again, I’m calling for investors to dismiss current broader trends punishing Palantir and get granular. In other words, look at Palantir from the inside.
In order to do so, just review its recent earnings to understand its appeal. In Q3 ‘21 Palantir reached $392 million in revenues. That represented a 36% increase on a year-over-year basis.
And there were a whole host of other metrics which are similarly appealing: 34 new customers, a total of 54 $1 million+plus deals, 18 of which were greater than $10 million in value.
Simply put, Palantir has grown throughout 2021. Revenue for the first three quarters reached $1.1 billion, up 44% from a year earlier. The firm provided guidance for 40% revenue growth overall in 2021, hitting $1.527 billion.
On top of that, CEO Alex Karp projects annual revenue growth will be at or above 30% through 2025. In other words, Palantir isn’t Northrop Grumman or any of those other legacy military firms beset by shrinking margins.
Rather, it’s a firm getting punished for the sins of its sector.
What to Do With PLTR Stock
I think the case for Palantir stock is clear.
PLTR holds a strong position within the defense industry. Analytics firms are unlike traditional war machine firms, even if they all get wrapped up under the military complex moniker.
What I’m saying is that the market is treating Palantir like it’s Lockheed Martin. But it isn’t the same. While Lockheed Martin and Northrop Grumman project weakening outlooks, Palantir does the opposite.
If the market recognizes that simple truth, PLTR stock will rise. If the market continues to see Palantir as inseparable from certain ways of business in the military industrial complex, it suffers. That is the gamble with Palantir stock right now.
But I think the market is smarter than that. And that’s why I see PLTR stock rebounding.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.