VIDEO: Goldman's Backlog, Fastenal's Margins and the SpaceX Catalyst

April 13 (11:34)

In today’s Pro Portfolio video, Chris Versace breaks down this morning’s earnings reports from Goldman Sachs (GS) and Fastenal (FAST) . He explains why Goldman’s modest sequential dip in investment banking backlog is likely to be short-lived and why next week’s SpaceX analyst day may hold the key for upcoming high-profile IPOs.

Chris discusses how Fastenal’s margin comments highlight some of our concerns about the Q1 2026 earnings season and company guidance for the current quarter. He also details our game plan as the market continues to shrug off higher energy and related prices.

We also revisit our plan for Axon (AXON) shares and remind you of the indicator we’re watching closely.

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At the time of publication, TheStreet Pro Portfolio was long AXON.

Transcript

CHRIS VERSACE: Hey, everybody. Chris Versace here, Monday, April 13. And despite President Trump sending a blockade, the Strait of Hormuz, and oil rising more than 5%. The stock market, kind of holding its own today. Got a little bit of a mixed bag. Dow is down. S&P up slightly. NASDAQ up a little more. Let's get right into it. And talk about the big earnings that we had today and what they tell us about what's to come.

First and foremost, Goldman Sachs -- probably the most profitable quarter the investment bank's had in some time. Stocks off. Revenue came in a bit light for the March quarter. When we break it down-- and why are we breaking it down? Not just because it's one of the first companies to report. But remember, we own Morgan Stanley Bank of America in the Pro Portfolio.

So we're very curious as to what Goldman has to say. And we'll juxtapose that against what JP Morgan and Wells Fargo have to say tomorrow as we get ready for Morgan Stanley and Bank of America, their quarterly results, before the market open on Wednesday. So let's break it down.

Trading and investment banking and asset and wealth management at Goldman Sachs -- very robust, more than offset mixed expectations for fixed income and currency operations. But I would argue that probably the biggest comment coming out of Goldman's earnings press release was the fact that its investment banking backlog was down modestly on a quarter-over-quarter basis. But let's remember, that is from near record levels exiting 2025.

But as we think about it, we are seeing continued IPO filings being had with the SEC. But let's remember too, that in about a week's time, on April 21, SpaceX is going to hold its analyst day. This is going to be really important because SpaceX is expected to be the biggest IPO that has happened. Company's looking to raise about $50 to $75 billion. And that means the fees, well, they're going to be massive for investment banks.

And we're fortunate enough to know that Morgan Stanley Bank of America are one of the top four investment banks slotted to be leading the IPO. The other two -- Goldman Sachs, JP Morgan. Again, I think we're going to hear a lot more about SpaceX IPO euphoria after the analyst day on April 21. Kind of curious just to read between the lines on the various line items, segments, profits, expectations at SpaceX.

But as enthusiasm builds for that IPO, which is targeted for the middle of the year, I do think we're going to see the IPO window for other large and expected IPOs reopen. We're talking, of course, about Anthropic, about Canva, about Stripe, and many others, including OpenAI, later in the year.

So potentially, what we're seeing here is a little bit of lull, if you want to think of it that way, in Goldman Sachs's investment banking backlog. Now, we will hear what JPMorgan has to say as well tomorrow. And that will shore up our expectations-- round them out, if you will -- for what Morgan Stanley and Bank of America are likely to report.

We could see a similar lull. There could be some shifting in market shares across M&A advisory and a few other things. But by and large, we do suspect that as we move deeper into the second quarter, potentially into the third quarter, we could see investment banking activity re-accelerate. That keeps us long-term bullish on the shares of Morgan Stanley Bank of America.

Interestingly enough, Goldman also had a comment about AI and cloud that I just wanted to share. And what they said is that the firm has accelerated investments in cloud migration and data quality to optimize the deployment of AI solutions and unlock greater productivity and efficiency opportunities over time.

Now, you know that we continue to track comments like this that speak to not only rising AI adoption, but really expanding usage. To us, that is really one of the key items to follow, so we can track where we are in this AI adoption and usage cycle. And I would say that we're clearly not in the first or second innings. I continue to think we're more in the third, maybe fourth inning of this.

But remember, AI adoption is one thing, as we talked about with internet adoption. It's expanding usage that really matters much more as it relates to needed incremental capacity for data center and for networking. And as we saw with internet usage, over time the number of usage vectors continue to expand, and we suspect that's going to be the case with AI.

And again, we'll have a lot more to think about on the banking front -- JPMorgan, Wells Fargo tomorrow, ahead of Bank of America, Morgan Stanley on Wednesday. And on the earnings front, two just for the portfolio. Sorry to slip this in. Remember, we do have Netflix after the close on Thursday.

Now the other earnings report that I want to talk about that's out this morning is Fastenal -- ticker symbol FAST. It's not a name that we talk about quite a bit. But I will share it is one that we track in part because it tends to report on the early side during any quarterly earnings season.

Now, Fastenal -- who are they? They're an industrial supply and distribution company. They did report in-line results for the March quarter, but the stock is falling. What's going on here?

Well, margins fell year over year and quarter over quarter due to two factors. First, unfavorable price cost mix as tariff-related costs move through the P&L faster than pricing -- margin pressure, tariffs. Second issue, not a surprise given that they're a distribution company, headwinds from higher transportation costs. Think about the upward move in oil, gas, diesel, and the other things that we've been talking about in March. Not much of a surprise.

Here's the thing. On Fastenal's earnings call, management said that the current quarter will be challenging as well. A couple of factors -- one is the lag between initiating and realizing price changes due to contracts and negotiations. We know that putting pricing into the marketplace at higher levels can take time. It may not all stick. But at the same time, transportation costs are going to continue to be a headwind. So additional margin pressure in the current quarter, even as we lap tariffs.

Now, I will say that Fastenal thinks that they could get some improved margins in the third quarter and fourth quarter. But I would also push back on this for a couple reasons. One, we do have some incremental tariffs that have come on stream. Remember, President Trump sticking up his 15% global tariff. We'll have to see how that plays out. It hasn't been implemented yet. But remember, we have heard rumblings out of DC that it is coming.

I would also say that given what's going on between US and Iran and the extending duration and fallout of this conflict, oil prices, other energy prices, likely to remain higher for longer. Will they remain at elevated levels through November, like President Trump hinted at? We'll have to see. We'll have to see.

But I would argue that what we're hearing out of Fastenal is just another reminder about something we discussed with you in Friday's weekly roundup, that the market, even though it is shrugging off the US-Iran conflict today in higher oil prices, we will see that other shoe to drop in the coming couple of weeks as the earnings season goes from first gear, second gear, third gear, and the velocity of earnings reports really accelerates.

We continue to have our reservations about current consensus EPS expectations. Some would say they're risky. I would say I am inclined to agree with you. And for that reason, we're going to continue to hold the inverse ETFs that we have in the Pro Portfolio.

One other thing that I just want to talk about is that as the earnings season heats up, we fully expect to hear a lot more about these particular things -- margin pressure, tariffs, pricing, energy prices, higher input costs, and potentially, fresh pricing actions in the coming weeks and months, as companies look to grapple with all of these higher cost pressures. So again, more reasons for us to keep these inverse ETFs in play.

Two other quick things. One, I'm sure you saw our alert where we picked up more shares of Palantir. We telegraphed that. We are kind following through on that. And remember, on the valuation front, please take a look at that alert.

Our view is that a EE to growth or PEG ratio is the right way to look at that stock, as well as other growth stocks. On that basis, the shares are trading around two times based on the EPS growth out to 2028. We explained why we're comfortable going out that far. So please be sure to read that alert.

And in that alert, we also shared with you that we are closely watching Axon shares. All the signals that we continue to get regarding public safety spending, public safety adoption of body cameras, AI, cloud-- all extremely favorable. Axon shares are up a little bit today as software stocks seem to get a bounce. But remember, Axon is not a software stock. It is a hardware and software company, not too different, as we talked about last week, from Apple.

But here's the thing. The shares were oversold this morning. They are still flirting with that a little bit. But the key point that I wanted to remind you about in that alert is we are closely watching the slope of the MACD line. Now, if this indicator flattens and potentially turns up, that will likely prompt our picking up some additional acts on shares.

So that's what we're watching for. And if we do make any moves, we will quickly share that with you in an alert. And that means folks, please be sure to check your emails and alerts. If we make any moves with the portfolio, we want to make sure that you are right there with us. But we also want to make sure that you're getting our latest thinking. We've got a lot more coming up, so you'll have ample time today to continue to check those alerts. Thanks for watching.