Better Buy: Palantir Stock vs. UnitedHealth Group Stock

Two stocks that have been at the center of financial news stories throughout the year are data mining specialist Palantir Technologies (NASDAQ: PLTR) and health insurance giant UnitedHealth Group (NYSE: UNH).

The reasons these two companies are fetching so much attention, however, couldn't be more opposite.

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Palantir has emerged as a darling of the artificial intelligence (AI) revolution. As of this writing (June 5), shares of the stock have gained nearly 60% on the year -- making it one of the top performers in the S&P 500 and Nasdaq-100 indexes.

By contrast, UnitedHealth Group stock is the worst-performing name in the Dow Jones Industrial Average -- with shares plummeting by more than 40%.

Is now the time to hop on the Palantir train, or should investors take an inventory check on UnitedHealth and choose to buy the dip?

Palantir is on a run for the ages

It's been just over two years since Palantir released its Artificial Intelligence Platform (AIP), a software suite that's proven to be a transformative game changer in the company's pursuit of competing with the largest players in the tech landscape.

PLTR Revenue (Quarterly) data by YCharts

Since releasing AIP, Palantir has unlocked a new wave of revenue acceleration -- thanks in large part to the company's impressive penetration of the private sector. For most of its history, Palantir relied heavily on government contracts from the Department of Defense (DOD).

While deals with the U.S. Military and its allies are still an important cornerstone of Palantir's business, AIP has helped the company break ground in a host of other use cases -- financial fraud, supply chain and logistics, aviation, and much more.

What might be most impressive about Palantir's transformation over the last two years is how rapidly the company transitioned from a cash-burning operation to one that generates consistent profitability. Not only is Palantir acquiring new business, but it's also monetizing these customers in a profitable way. That's a lucrative combination, indeed.

The one idea that's paramount for smart investors to understand is that while Palantir's business is soaring, so is the company's share price. As of this writing, Palantir trades at a price-to-sales (P/S) ratio of 97.

Not only is that magnitudes higher than any of its peers in the software realm, but it is historically high compared to what investors witnessed during the dot-com bubble in the late 1990s.

I don't think I'm the only one who has noticed the pronounced valuation expansion in Palantir, either. Consider that Cathie Wood's Ark Invest portfolio has been trimming Palantir stock as of late, and billionaire money manager Stanley Druckenmiller completely dumped his firm's stake in the AI stock during the first quarter.

UnitedHealth Group can't seem to get out of its own way

UnitedHealth Group's coverage couldn't be any more different than Palantir's. While investors continue to cheer on Palantir's dominance, it seems that only negativity surrounds UnitedHealth at the moment.

At the core of the health insurer's problems are some operational hiccups. Mismanagement in forecasting utilization rates in the company's Medicare Advantage business, as well as some unforeseen challenges in the pharmacy benefits management (PBM) segment, caused management to reduce financial guidance for 2025.

If this weren't enough to get investors worked up, UnitedHealth also replaced its CEO as the company seeks to right the ship and turn things around by next year.

UnitedHealth's downward revision and executive changes were met with a stock sell-off for the ages. Don't believe me? As of this writing, shares of UnitedHealth trade at $296 -- hovering near a five-year low.

Image source: Getty Images.

Which stock is the better buy?

Despite its near-term headwinds, UnitedHealth stock looks awfully tempting at a forward price-to-earnings (P/E) multiple of just 13. When you consider that insiders have been buying the stock in the aftermath of this epic sell-off, I'm cautiously optimistic that all of the bad news surrounding UnitedHealth is priced in.

UNH PE Ratio (Forward) data by YCharts

On the other side of the equation, I think it's becoming increasingly difficult to argue that max upside isn't already priced into Palantir. Sure, I'm bullish on the company's future, but buying the stock near an all-time high doesn't seem like a prudent idea right now.

Overall, I'd choose to buy the dip in UnitedHealth as opposed to chasing the momentum fueling Palantir stock at the moment.

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Adam Spatacco has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.