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Cybersecurity stocks soaring in surging war against cybercrime

Investors are outperforming the S&P 500 by 12 to 1

In a dull, windowless room within a secure facility somewhere in the grey expanse of Moscow, anonymous agents of the Russian government right now have their fingers on the switches of US power plants, ready to shut down large swaths of our power grid, sinking us into darkness and chaos.

That’s not a scene from a movie. It’s reality. On March 15, 2018, the Department of Homeland Security (DHS) and the FBI issued an urgent warning about a national security threat that signals the changing nature of war in the 21st Century.[1] A threat that would have been unthinkable only a few years ago.

Russian hackers have infiltrated our US electric grid, and DHS says that Russia very likely now has the ability to shut down our power plants at will, causing enormous economic destruction, social unrest, and threats to public health and safety.

 

A major new attack could come any day

The hackers gained access by breaching the computer networks of third-party vendors, hopping from there to the networks of their ultimate targets, where they hacked into the control systems of more than a dozen US power plants.

Russia, China, North Korea, and Iran all fire a constant barrage of cyberattacks against America in attempts to steal sensitive information and create chaos. The director of the National Security Agency says, “It’s only a matter of the when, not the if, that we’re going to see” a cataclysmic offensive attack.[2]

Infrastructure isn’t their only target, either. Attacks on critical manufacturing and commercial targets, including banks, stock exchanges, transportation networks, hospitals, and even small businesses and home computers are “literally happening hundreds of thousands of times a day,” according to Energy Secretary Rick Perry.[3]

The economic impact is incalculable. Losses to US companies from China’s cyber espionage efforts alone “are in the hundreds of billions of dollars,” says Peter Navarro, the White House director for trade and industrial policy.[4]

 

In the 21st Century every computer is a potential
weapon of war

War in the 21st Century is destined to be less about military hardware and soldiers in the field, and more about stealth attacks on business, infrastructure, and citizens via the Internet.

And whether it’s war against your country, your business, or your personal wealth or identity, computers are now the most common – and potentially most dangerous – weapons of destruction.

That’s why today, as Russia, China, Iran, and North Korea step up their attacks against the US, some of the best minds in America are racing to shore up the security of our most vulnerable assets: Internet-connected computers.

In 2017 there were more than 9.32 billion malware attacks.[5] With a global population of just over seven billion, that’s 1.33 attacks for every man, woman, and child on Earth.

The losses exceed $450 billion per year, and are expected to increase by 14 times by 2021, hitting $6 trillion annually. [6] Which is why Ginni Rometty, President and CEO of IBM, says cybercrime “is the greatest threat to every profession, every industry, and every company in the world.”[7]

A Duke University survey estimates that more than 80 percent of US companies have been successfully hacked.[8] Smaller companies are the most vulnerable; more than 70 percent of cyberattacks are against firms with fewer than 100 employees.[9]

The survey’s director, John Graham, says, “No one appears safe. The situation may even be worse than reported because many firms might not even realize that they have been attacked.”

The average price for a small business to recover is $690,000. For mid-size companies, it’s over $1 million.[10] The national Cyber Security Alliance found that 60 percent of small companies close their doors within six months after a cyberattack, unable to meet those costs.

Even corporate giants like the credit bureau Equifax are not immune. With the 2017 hack that affected 145.5 million customers, intruders seized sensitive data like names, date of birth, Social Security numbers, home addresses, and even tax ID numbers and driver’s license details.

Meanwhile, we learned after the attack that the company’s chief security officer was a music major with no cybersecurity experience who used “admin” as his password for a major database.[11]

 

Pilfering your most private information

Home computer users are also frequent targets of hackers. The Pew Research Center estimates that 64% of all Americans have had their personal data compromised, stealing personal information to commit crimes that range from filing fraudulent tax returns to emptying your bank accounts.[12]

Oftentimes you never know you’ve been hacked until you see suspicious bank or credit card activity from personal data that could have been compromised months ago.

Hackers can steal your identity with the stroke of a key, and wipe out your bank account in an instant. They can pilfer your most personal information, selling it to third parties who use it for nefarious purposes. They can lock down your computer, denying you access, and demand ransom to release it back to you.

Cybercrime expert Michael McCartney says, “Some of the hackers work for their governments. Some of them work for organized crime syndicates. Some of them are guys sitting at their home computers in their underwear. Even those guys can do a lot of damage.”[13]

 

“Make no mistake: it’s a war.”

Whether the targets are governments, businesses, or you, cybercrime is the number one global threat today. Warren Buffett says that cybercrime is “the number one problem with mankind,” adding that the threat is more dire than the possibility of nuclear war.[14] Larry Ellison, founder of Oracle, says, “Make no mistake: it’s a war.”[15]

House representative Elise Stefanik says cyber warfare is “a national security challenge of generational proportions.”[16] And former director of national intelligence James Clapper says that the prospect of a cyberattack on the nation’s critical infrastructure is now the top security threat facing the country, surpassing terrorism.[17]

 

Warnings like these are being translated into increased budgets for cybersecurity.

The Federal budget for 2019 boosts cybersecurity spending across the board to unprecedented levels. The $15 billion cybersecurity spending plan includes a 33 percent increase for the Nuclear Regulatory Commission, a 23 percent boost for the Energy Department, and a 16 percent lift at the Veterans Affairs Department. The Pentagon’s budget alone will be $8.5 billion.[18]

The Federal Emergency Management Administration’s National Preparedness Report notes that while cybersecurity is the biggest growth area for information technology spending in the coming year, states are still playing catch-up.

Half of all state and local governments have suffered security breaches in the past 24 months, according to one study, which is why cybersecurity spending now tops $22 billion a year across state and local budgets.[19]

 

Cybersecurity stocks are now outperforming
the S&P 500 by 12x

Businesses are also ramping up cybersecurity efforts, pushing overall spending from $120 billion a year today to an estimated $1 trillion by 2025.[20]

This rate of spending growth is making cybersecurity one of the most buoyant stock sectors today, outperforming the S&P 500 by 12 to 1.[21]

Leading companies include FireEye (NASDAQ: FEYE), which has outperformed the S&P 500 by nearly two-to-one over the past year[22]…Trend Micro (OTC: TMICY), which took a beating in February, but is back to hitting new highs, also outperforming the S&P 500 by nearly two-to-one in the past year[23]…and Palo Alto Networks (PANW), currently outperforming the S&P 500 by four and a half times in the past year.[24]

Since their very beginnings, stocks like Symantec (NYSE: SYMC), Check Point (NASDAQ: CHKP), Proofpoint (NASDAQ: PFPT), Vasco, and VMWare have rarely faltered, soaring to ever-higher highs. Pullbacks are always followed by price surges, rewarding investors with returns like 3,593% (SYMC), 3,621% (CHKP), 471% (PFPT), and 433% (QLYS).

In the past six months alone, Splunk has soared 48%, Palo Alto Networks has jumped 45%, and Proofpoint has rocketed 28%.[25]

 

Cybersecurity stocks to watch

Symantec (SYMC) and FireEye (FEYE) are two of the most reliable return generators for investors. Their security products are best-of-breed, and as the cybersecurity market grows, they are two of the main beneficiaries.

Symantec owns the leading anti-virus product, Norton, a full-blown cybersecurity powerhouse for web and mobile. Symantic bought LifeLock last year, incorporating its identity theft features into Norton. SYMC is currently trading near its year-to-date lows, making this an opportune time to buy.

FireEye is rumored to be a possible acquisition target due to aggressive cost-cutting and improving financials. The company is much smaller than Symantec, but their potent products make them a powerhouse. Cisco and Microsoft are both rumored to be looking at its acquisition. FEYE stock has been rising, but is still a bargain for the time being.

 

There are dynamic up-and-comers worth looking at too

One of the most promising is VirtualArmour (OTCQB: VTLR / CSE: VAI / FRA: 3V3), a fast-growing Denver based company that was named one of the “world’s hottest and most innovative cybersecurity companies” by Cybersecurity Ventures in 2018.[26]

VirtualArmour services a wide range of clients, including Fortune 500 companies, and several industry sectors in over 30 countries across five continents.

The company has enjoyed a 100% client retention rate within the past six quarters, which all but eliminates expensive client churn, and is a testament to the company’s stability and quality.

An impressive 30% of revenue is recurring on average three-year terms, making revenue steady and predictable. The company also just launched their new Cloudcastr cloud infrastructure into a market that is forecast to grow at an annual rate of 33% through 2020.

There are other outstanding stocks in the cybersecurity sector, many of which will be big winners in the surging war on cybercrime. Stocks tend to leap higher immediately following major cyberattacks as investors are newly reminded of their potential for big profits.

Get in during lulls, before publicity on cyberattacks fills the headlines, and hang on for a fast ride up the stock charts. Symantec and FireEye are your safe bets. Symantic even pays a healthy dividend. VirtualArmour hasn’t been overly discovered by investors yet, making its stock perhaps your biggest opportunity for outstanding profits.

Make no mistake: A cyberwar is being waged against America and its allies. Cybersecurity companies are our strongest defense. The bull market in cybersecurity stocks will be long-lasting…and could be exceptionally profitable for investors.


Cynthia Berryman, Contributor
for Investors News Service

P.S. To discover more opportunities in the hottest sectors in North America, sign up now to the Financial News Now newsletter to get the latest updates and investment ideas directly in your inbox!

DISCLAIMER: Investing in any securities is highly speculative. Please be sure to always do your own due diligence before making any investment decisions. Read our full disclaimer here.

Originally Published June 2018
Updated November 2018

Sources:

[1] https://www.us-cert.gov/ncas/alerts/TA18-074A

[2] https://www.washingtonpost.com/world/national-security/nsa-chief-foreign-powers-steal-data-on-critical-us-infrastructure/2014/11/20/ddd4392e-70cb-11e4-893f-86bd390a3340_story.html?utm_term=.eafd68301eac

[3] https://www.bloomberg.com/news/articles/2018-03-15/russian-hackers-attacking-u-s-power-grid-aviation-fbi-warns

[4] http://www.atimes.com/article/us-trade-report-lays-bare-chinese-government-cyber-espionage/

[5] https://www.computerweekly.com/news/252436356/Cyber-attacks-up-nearly-20-in-2017

[6] https://www.cnbc.com/2017/02/07/cybercrime-costs-the-global-economy-450-billion-ceo.html

[7] http://en.finance.sia-partners.com/20170628/cybersecurity-increasingly-emergent-thought

[8] https://www.cbsnews.com/news/percentage-of-companies-that-report-systems-hacked/

[9] https://www.fuqua.duke.edu/duke-fuqua-insights/cfo-survey-hacking

[10] https://www.denverpost.com/2016/10/23/small-companies-cyber-attack-out-of-business/

[11][11] http://money.cnn.com/2018/02/09/pf/equifax-hack-senate-disclosure/index.html

[12] http://www.pewinternet.org/2017/01/26/americans-and-cybersecurity/

[13] http://buffalonews.com/2016/12/31/local-victims-targeted-computer-hacking-crimes-rise-alarming-rate/

[14] http://www.businessinsider.com/warren-buffett-cybersecurity-berkshire-hathaway-meeting-2017-5

[15] https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/bobevans1/2017/10/04/larry-ellison-on-cyber-attacks-its-a-war-and-were-losing-this-cyberwar/&refURL=https://www.google.com/&referrer=https://www.google.com/

[16] http://freebeacon.com/national-security/pentagon-russia-china-able-launch-catastrophic-cyber-attacks-u-s-infrastructure-next-10-years/

[17] https://www.cnet.com/news/intelligence-chief-offers-dire-warning-on-cyberattacks/

[18] https://www.nextgov.com/cybersecurity/2018/02/trump-2019-budget-spikes-cyber-spending-cuts-research/145925/

[19] https://www.fema.gov/media-library-data/1503926640648-0b64216b808eb42a93ba96fe8888d113/2017NationalPreparednessReport_508_COMPLIANT.pdf

[20] https://cybersecurityventures.com/cybersecurity-market-report/

[21] INTZ, RPD, TMICY, PANW, CYBR, SPLK, FTNT, SAIL through 10/10/18

[22] 3-29-17 through 3-28-18 https://www.google.com/search?num=40&newwindow=1&tbm=fin&q=INDEXCBOE:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5AEZhN345AAAA&sa=X&ved=0ahUKEwjy2uS23I_aAhUK0YMKHSpVC6UQ0uIBCKwBMBE&biw=1280&bih=933#scso=uid_8ui7Wq7ZFonRjwSttaLwCw_5:0&smids=/g/1n36p37wg&wptab=COMPARE

[23] 3-29-17 – 3-28-28  https://www.google.com/search?num=40&newwindow=1&tbm=fin&q=INDEXCBOE:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5AEZhN345AAAA&sa=X&ved=0ahUKEwjy2uS23I_aAhUK0YMKHSpVC6UQ0uIBCKwBMBE&biw=1280&bih=933#scso=uid_8ui7Wq7ZFonRjwSttaLwCw_5:0&smids=/g/1dtwlk7f&wptab=COMPARE

[24] 3-29-17 – 3-28-18 https://www.google.com/search?num=40&newwindow=1&tbm=fin&q=INDEXCBOE:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5AEZhN345AAAA&sa=X&ved=0ahUKEwjy2uS23I_aAhUK0YMKHSpVC6UQ0uIBCKwBMBE&biw=1280&bih=933#scso=uid_8ui7Wq7ZFonRjwSttaLwCw_5:0&smids=/g/11cfmwb6b&wptab=COMPARE

[25] All from Oct 3, 2017 to March 29, 2018

[26] https://www.stockwatch.com/News/Item.aspx?bid=U-z7300619-U%3aVTLR-20180607&symbol=VTLR&region=U

Cynthia Berryman

Cynthia Berryman covers markets and microcaps, and has written for financial newsletters that include The Motley Fool, Investor’s Business Daily, Forbes, Street Authority, and others. With keen insight into trends, she helped guide investors to safe dividend-paying stocks in 2007, high-flying resource stocks in 2011, and Bitcoin profits in 2017, as well as other prescient and profitable picks.