Three cybersecurity investments to purchase for growth feature household names such as Cisco Systems Inc. (NASDAQ:CSCO) and lesser known but highly promising competitors that are excelling in important niches.
The seven cybersecurity investments to purchase serve as vital protectors for intellectual property and a reminder of their value occurred on July 21, when the U.S. Department of Justice announced a federal grand jury returned an 11-count indictment charging two hackers who work for the People’s Republic of China with invading the computer systems of hundreds of organizations. Companies, governments, non-governmental organizations, dissidents, clergy and democratic and human rights activists in the United States and abroad were among the victims of this alleged state-sponsored espionage.
The indictment indicated the hackers stole terabytes of data that comprised a “sophisticated and prolific threat” to U.S. networks. The alleged cyber thieves also targeted Western medical researchers who are seeking to develop a vaccine to help fend off the devastating human toll of COVID-19, a virus that originated in Wuhan, China.
- Cisco Systems
Cisco Systems, a developer, manufacturer and seller of networking hardware, telecommunications equipment and other high-technology services and products based in San Jose, California, overcame the challenge of U.S.-China trade disputes in the past couple of years when its top leaders mitigated almost the entire effect of 25% tariffs by improving its supply chain position and by selectively boosting its prices, Goldman Sachs (NYSE:GS) concluded.
Mark Skousen, PhD, an economist who is a Presidential Fellow at Chapman University, recommends Cisco as one of the Flying Five stocks in his flagship investment newsletter, Forecasts & Strategies, offering dividend-paying companies that feature a handful of the five lowest-priced stocks among the 10 highest-yielding ones in the Dow Jones 30. Those stocks are updated each August and tend to outperform the market annually, but not always since he began using the strategy in 1994.
The Flying Five did not keep up with the high-tech boom of the late 1990s and the strategy further faltered in 2008, when three of the Flying Five stocks stopped paying dividends. Since then, the Flying Five strategy typically has beaten the market each year.
Skousen’s recommendation of Cisco on March 9 to replace another stock resulted in the new position soaring 25.0% from $38.20 to $47.02, aided by a 3.07% dividend yield that has included 72 cents per share in payments.
Cisco, a high-end industry leader in technical performance, has been locked in a global competitive struggle against China’s Huawei for years. It costs plenty of money to keep packing more ports and connections in Cisco’s devices every year to keep up with network load, so Cisco passes that research and development (R&D) cost onto customers who need the premium speed, said Hilary Kramer, host of a national radio program called “Millionaire Maker.”
On the other side, there is China’s Huawei, which treats networking as a commodity business where simply throwing enough routers and switches at the problem is the right solution, provided of course that the equipment is built cheaply enough and replaced in large volumes when it breaks, Kramer continued. These are not meant to be “disposable devices,” but the lowest-cost approach appeals to small, price-sensitive enterprise customers with limited budgets, she added.
Cisco Systems remains a technology leader and has impressed Goldman Sachs and others with its resilience. If the company’s management can stay on course, its shareholders could be rewarded with further strong returns. The company received a downgrade to neutral from overweight on July 16 from JPMorgan due to a lack of visibility about the company’s return to revenue growth. However, the investment firm maintained its price target of $50, which now is less than $3 away.
The company received mixed reviews in June from Bank of America, which upgraded the stock to “buy” from “neutral” and boosted its target price to $55 from $48. RW Baird reduced its rating on Cisco to “neutral” from “outperform” but kept its target price at $48.
There have been fears of a collapse in cybersecurity growth for years now, but it has not happened. The recent pandemic spurred a working-from-home trend that could sustain growth for a while.
Zscaler (NASDAQ:ZS), also of San Jose, California, stands out partly because its technology could make its rivals obsolete. ZS software is specifically built for cloud computing, and is user- and application-centric, as opposed to network-centric.
Zscaler is a global cloud-based information security company that provides Internet security, web security, firewalls, sandboxing, SSL inspection, antivirus, vulnerability management and granular control of user activity in cloud computing, mobile and Internet of things environments. However, Zscaler is among the technology companies that do not pay a dividend to keep the research-and-development pump primed.
ZS is security as a service, with all software off-premise, which allows for easy deployment with no need to change existing hardware infrastructure. It is less costly to manage than traditional proof points and network gateways, while also reducing cost of total ownership.
Zscaler is one of the top picks of Andrew Nowinski, a cybersecurity analyst with D.A. Davidson, an investment firm headquartered in Great Falls, Montana, that covers technology closely. Nowinski told me Zscaler is “well-positioned” for the upcoming digital transformation, which has been accelerated in response to the COVID-19 outbreak.
“Zscaler’s entire platform was specifically designed to more efficiently and securely connect remote workers to applications,” Nowinski said. “While the adoption of ZPA has accelerated following the outbreak, we believe adoption of ZIA will also start to accelerate as companies begin the journey of the digital transformation. As such, we expect revenue growth to remain strong for the next three-plus years, as no other vendors have a comparable solution.”
Fortinet (NASDAQ: FTNT), based in Sunnyvale, California, provides firewalls, antivirus, intrusion prevention and endpoint security that help secure in-house and remote workers.
Fortinet reported first-quarter 2020 revenue of $577 million, a 22% jump year over year. Billings jumped 21% year over year, reaching $667.8 million. Earnings per share rose 30% to 60 cents per share.
“The world is going to keep getting more and more cyber, and that means opportunists of all sorts are going to try to exploit the weaknesses in cyber systems,” said Jim Woods, who leads the Intelligence Report, Successful Investing and Bullseye Stock Trader advisory services.
“My favorite stock in the cybersecurity space is Fortinet Inc. (FTNT),” Woods told me. “The company’s software helps customers build a virtual ‘fortress’ around their data, and it does this chiefly through its firewall software.
“Fortinet also has targeted the latest trend in the cybersecurity markets, the so-called software-defined wide area networks. This is a relatively new computer networking technology, and experts say this is the next frontier in the cloud computing and cybersecurity technologies.”
Woods also teams up with Skousen on the Fast Money Alert trading service and recently notched a 93%-plus gain for those who follow their recommendations, fueled by the runaway rise in electric vehicle manufacturer Tesla, Inc. (NASDAQ:TSLA).
Fortinet beat expectations on revenue, billings and earnings per share, William Blair analyst Jonathan Ho wrote recently.
“Increased work from home activity drove demand for its FortiGate, FortiClient, FortiToken, and FortiAuthentication solutions,” Ho added.
Article partially appeared on stockinvestor.com
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