At the turn of the New Year, I briefly touched on the top tech trends of 2015. One of them was the rise of cybersecurity. I said, “This area of the market (cybersecurity) should prove to be one of the most exciting in 2015.”
I’m in good company.
Fred Wilson, who’s probably one of the most recognized venture capitalist in the business, highlights cybersecurity in his outlook for 2015. He notes, “cybersecurity budgets will explode in 2015 as every company, institution, and government attempts to avoid being ‘Sony’d.’ ”
There’s no shortage of ways to play the space. The simple answer is the PureFunds ISE Cyber Security ETF (NYSEArca:HACK). Since it started trading in mid-November, the ETF has outperformed both the S&P 500 and Dow Jones Industrial Average.
Or investors can cherry-pick the best plays in the market. The cybersecurity ETF’s top three holdings include Infoblox (NYSE: BLOX), FireEye (NASDAQ: FEYE) and Fortinet (NASDAQ: FTNT). But beware, they aren’t huge companies. They have market caps ranging from $1 billion to $5 billion.
One of the big catalysts driving the need for more advanced cybersecurity has been the shift to cloud computing. Complex systems are proving difficult to protect. That’s where network security comes into play.
Infoblox is company that specializes in network security and Fortinet is another network security provider. FireEye has a platform that focuses on forensics to identify threats. FireEye is one of the most expensive names in the industry in terms of valuation — despite being down 40% over the last year, it still trades at a price-to-sales ratio of 15.
Other ideas in the cyber security space include:
Proofpoint (NASDAQ: PFPT), which has a heavy focus on e-mail protection. KEYW Holding (NASDAQ: KEYW) is one of the smallest players on our list, with a sub-$500 million market cap. It collects and analyzes intelligence data. Key customers are the Department of Defense (DoD) and National Security Agency (NSA).
Meanwhile, Palo Alto Networks (NYSE: PANW) is one of the biggest industry players, with a $10 billion market cap. It’s involved in the network security space, but has also been one of the best performers in the industry over the last year, with its shares up 100%.
Digging deeper, StockTwits founder Howard Lindzon reiterates Fred Wilson’s sentiment that cybersecurity will be a big trend for this year in his annual predictions. But Lindzon isn’t bothered with network security.
He’s interested in notable stocks that include the identify theft protection company LifeLock (NYSE: LOCK) as well as the $17 billion market cap software security company, Symantec Corp. (NASDAQ: SYMC). Recall the Norton antivirus software? Well that’s Symantec.
CyberArk Software (NASDAQ: CYBR) is another name Lindzon calls attention to. It completed its IPO back in September and is up only 20% since then — a nice return but not as great as most IPOs we saw last year.
Here’s a quick look at the cybersecurity stocks highlighted above. Note that the valuation and returns on these stocks vary a lot.
|Stock ticker||Price-to-sales||52-week performance|
Only a handful of the cybersecurity stocks are currently making money. These include Fortinet, LifeLock and Symantec. But there also are a couple that are worth a closer look, including Infoblox and CyberArk Software. These two are expected to start making money over the next year and have debt-free balance sheets.
In closing: 2014 put cybersecurity on the map. 2015 will be the year that the market starts getting serious about investing in protecting data. And with no company safe from hackers, the market opportunity appears massive.
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