Should You Invest in Cybersecurity Stocks? Top Tips & the 4 That Should Be on Your Radar

By Chika

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Last Updated: November 29, 2021

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The rising wave of cyberattacks on critical installations has no doubt raised the importance of cybersecurity.

The cyberattack on Colonial Pipeline led to a shutdown in the supply of refined petroleum products, thereby causing shortages in several cities on the east coast. This served as a harsh reminder of how easily our lives can be disrupted by these attacks.

Other critical installations and institutions such as Sony, Microsoft, and even government agencies such as the FBI, and DOJ have had to deal with cyberattacks at one point in time. This article highlights the growing importance of cybersecurity and why investors should keep stocks in this sector under their radar.

 

Why Invest in Cyber Security?

According to data from the Hiscox Cyber Readiness Report 2021 which surveyed over 6,000 companies in the United States and Europe, it was reported that the number of businesses targeted by cybercriminals in the past year increased from 38% to 43% within the past year.

28% of businesses reported experiencing five or more attacks. 

These attacks have had dire financial consequences for the targeted companies. 17% of the companies surveyed said that the cyberattacks threatened their future operations after severely hitting their finances.

5% of companies reported costs of over $300,000 or more for a cyber attack. It is reported that Colonial Pipeline paid $4.4m in ransom to DarkSide, the criminal gang responsible for the cyberattack on the company.

The scenario above depicts the growing importance of cybersecurity.

This is heightened by the fact that the pandemic has accelerated the digitization of businesses. Due to the stay-at-home measures put in place by the government, many organizations have pivoted to remote working, thus making work-from-home the new normal.

However, as witnessed in the cases of colonial Pipeline and many other companies, this has made more organizations susceptible to cyberattacks, making cybersecurity a huge source of concern. 

 

Global Spending on Cyber Security is Growing Exponentially

As a result of this, global spending on cybersecurity is growing at an astronomical pace each year. In 2020, total revenue generated by cybersecurity companies was close to $175 billion. That figure is forecast to increase to $250 billion in the next five years.

This implies that companies that offer cybersecurity services may be on the verge of a supercycle, especially as the world gets increasingly connected through digital services. As such, investors who position themselves early in this sector would reap beneficially.   

However, this does not imply going all-in on any cybersecurity stock one comes across. Many of these companies are not profitable, let alone backed by strong fundamentals.

However, there are still good pickings in this sector with many opportunities for investors to profit from. Here are some cybersecurity stocks you should have under your radar. 

 

4 Cyber Security Stocks to Invest in

1. Fortinet Inc (Nasdaq: FTNT)

Fortinet provides a range of security solutions that helps companies protect their networks from threats and cyberattacks.

Though the company’s growth has been relatively modest, Fortinet has an impressive balance sheet. The company’s free cash flow increased by 27%, a higher incremental rate than sales. As of the end of the 2020 fiscal year, Fortinet had $1.84 billion in cash and short-term investments, and zero debt.

Fortinet is also poised to benefit from the brewing 5g revolution, which signifies that the company has a lot of potential in the near future. 

2. NortonLifeLock (Nasdaq: NLOK)

This is another impressive stock in the cybersecurity space.

NortonLifeLock is one of the companies that emerged from the breakup of Symantec into three companies. While most cybersecurity companies focus on corporations, NorthonLifeLock focuses on the end-user.

It provides security to personal digital products such as PCs, laptops, notebooks, and mobile devices from cyber threats like ransomware. Though when compared with its peers, sales growth has been slow, the company remains highly profitable with an operating profit margin of 29%.

Analysts have forecast an income growth of 28% over the next five years which might be an indication that the current share price has not reflected its future earnings yet. The future couldn’t be any brighter for this company. 

3. Palo Alto (NASDAQ: PANW)

Palo Alto Networks is one of the largest and oldest cybersecurity companies serving over 80,000 customers in more than 150 countries.

Established in 2005, the company has one of the most diversified product portfolios in the cybersecurity industry. The company posted revenue of $3.5 billion, which exceeds most of its peers in the industry. 

The company has made a string of acquisitions to consolidate its market share and keep pace with competitors such as CrowdStrike. In the last five years, Palo Alto has acquired about 15 companies including Zingbox, Aporeto, and CloudGenix.

The company expects 15% of its earnings to come from its acquisitions. In its guidance, Palo Alto forecast a revenue increase of 23%, and billings to rise by 19%-20% on an annualized basis. The stock’s modest valuation and diversified product range make this one of the more defensive cybersecurity stocks.

4. CrowdStrike (NASDAQ: CRWD)

CrowdStrike is arguably the global cybersecurity leader when it comes to cloud services, endpoint security, threat intelligence, and cyberattack response.

It's built an enviable reputation in the cybersecurity industry due to its efficiency in dealing with large-scale cyber-attacks. As expected, this has expanded the company’s customer base driven by high demand for the company’s products.

The company’s revenue for fiscal 2020 increased by 89% on an annualized basis. 

The company is not resting on its oars and is very keen on maintaining its present growth momentum. The company announced a partnership with Google (NASDAQ: GOOGL) which would see it provide and maintain high levels of security on Google Cloud by integrating the CrowdStrike Falcon platform.

Though shares of CrowdStrike have gained over 120% in the past year, the stock still has legs to run. 

 

Final Word on Cybersecurity Stocks

The cybersecurity industry is one industry where market timing is worth paying attention to.

Most cybersecurity stocks are growth stocks, which means volatility should be expected from time to time. Also, the valuations of some stocks in this sector seem to be overstretched.

However, this should not deter you from investing in the sector given its growing importance to our everyday lives. It is okay to test the waters and use technical analysis to establish entry points, but it would be foolhardy not to consider adding these stocks to your portfolio.

Photo by Adi Goldstein on Unsplash

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