In 2016 and 2017, a series of data breaches affecting government bodies, businesses and private individuals has led to an increase in spending on cybersecurity.
The Equifax Inc. breach had enormous implications for the approximately 145 million people whose data was compromised. Consequently, the company is in the throes of a significant internal overall.
In May and June 2016, corporate servers around the globe were hit by WannaCry and Petya, two ransomware programs that infected thousands upon thousands of computers.
American research and advisory firm Gartner Inc. predicts global spending on cybersecurity will rise from $96.3 billion in 2018 – an 8% increase from the year before – to triple digits in 2020.
As the demand for this industry balloons in a changing world, let’s look at five stocks that look promising for 2020, and which would work great as part of a cybersecurity ETF (Exchange-Traded Fund).
1. NortonLifeLock Inc. (Nasdaq: NLOK)
The cybersecurity service NortonLifeLock focuses on identity theft protection. It currently has around 4.4 million members, with 100,000 new ones having been added in just one week. It was included in the 2016 Online Trust Honor Roll in recognition of its high standard of consumer protection, responsible privacy practices, and data security.
Stock is trading around $28.25 after peaking at $34 following the Equifax breach. S&P Capital IQ believes that this makes it one of the cheapest stocks in its cybersecurity software peer group. NortonLifeLock currently has a forward price-earnings (P/E) ratio of 15.13 compared to its peer group’s average forward P/E ratio of 28.85.
Based on expected annual earnings of $1.68 for 2020 and the peer group average forward P/E of 28.85, NortonLifeLock’s shares are expected to be worth $48.47 next year, which represents a 71.58% upside.
NortonLifeLock Inc.’s stock is expected to fall by the second half of January, if not sooner, because the company should report its third-quarter earnings results in the first week of February.
2. FireEye Inc. (NASDAQ: FEYE)
FireEye Inc. is a dedicated provider of security platforms for enterprises and governments. The company’s unwavering efforts to develop new and advanced cybersecurity products continue to attract a wide range of customers.
For example, its Essentials product is a lower cost and simpler version of the FireEye Global Threat Management platform and is targeted at smaller and mid-market companies.
It has also developed the lower cost Cloud MVX and MVX Smart Grid intelligent threat detection solutions for large enterprises and mid-market businesses.
It recently changed its model from selling software to providing subscription-based cloud services. This is expected to generate lower revenues initially, but the model offers greater stability over the long term, as customers commit to renewing subscriptions and enhancing security with updated versions of the service.
The acquisition of iSIGHT Partners last year strengthened the company’s abilities by offering an intelligence-led security model for enterprises of any size. This is something that other security providers find difficult to match.
FireEye also bought Invotas, which concentrates on improving response times following a cyber-attack. Its product, Security Orchestrator, gathers information from different security products and generates an automatic response when an incident occurs.
FireEye Inc. has recently been trading around the $14.05 mark, a 17.06% increase in performance over the year so far. The company’s fourth-quarter earnings reached $202.3 million, a 10% increase from 2016’s fourth quarter.
3. Check Point Software Technologies Ltd. (NASDAQ: CHKP)
Check Point Software Technologies is a worldwide provider of technology security solutions.
Although it was founded in 1993, in 2009, following heightened security threats and potential hacking attacks, the company transitioned from an appliance-led model to one that focuses on Software Blade architecture. Its blade architecture is increasingly popular with customers, as it allows them to choose from an archive of software blades and customized solutions to meet their individual needs.
The swift adoption of Check Point’s data center appliances and consistent enhancements in data center product lines provide abundant top-of-the-line support. The company’s focus on boosting mobile capabilities also enables it to tap into new market sectors. The company is trading around $102.94 and has only gone as low as $80.78 over the past 52 weeks.
4. BlackBerry Ltd. (TSX:BB) (NASDAQ: BBRY)
BlackBerry Ltd. provides consulting and mobile cybersecurity for government agencies around the globe. The company develops risk-reduction strategies, implements IT security standards, and provides defense against future attacks.
In July 2017, it announced that it had won the right to sell its secure messaging tools to the US Federal Government with an endorsement from the National Security Agency. This capability was possible with technology obtained as part of the 2014 acquisition of Secusmart.
BlackBerry stock rose by around 56.5% in 2019, and in its second-quarter results, released on September 28, the company posted record software and services revenues of $196 million. It is currently trading at around $13.10, making the former hardware giant a great bet moving forward as it continues its aggressive foray into the software market.
5. Palo Alto Networks (NYSE: PANW)
Palo Alto Networks is a fairly new player among the cybersecurity elite.
The company made a name for itself with a firewall that controls how data flows in and around corporate infrastructure, allowing a customer’s security team to control which applications connect and regulate traffic from other devices.
Revenues jumped 248% between 2013 and 2016, reaching $1.4 billion.
The stock has been volatile, however, and in August 2019 it was trading 34% below its summer 2015 high. One of the reasons for this is that the company is transitioning to a product subscription model. This will help create more durable customer relationships and make profits more consistent. It is currently trading around $142.53 and is showing a 13.98% increase in the year to date.
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Credit: WSJ.com, Business Insider, defense.gov © De Angelis & Associates 2020. All Rights Reserved.