The market may have fallen out of love with the semiconductors after a long rapturous period, as the plummeting stock of Micron (MU) sure shows you. A combination of a cessation in takeovers because of Chinese scrutiny, a sense that so-called commodity chips have peaked D and worries about overcapacity in the cryptomining space have coalesced to take the wind out of their sales in dramatic fashion.
But you know what seems to have replaced them?
It makes all of the sense in the world. We are doing our wargames in South Korea and there is no sign that the North Koreans have ever stopped in their attempts to hack everything. The Chinese are madder at us than any time I can recall since Nixon went to China, so it isn't like they are going to rein in their hackers.
And the Russians? They have always disrespected our laws but now they seem to have the implicit backing of President Putin.
That's why the stocks have replaced the semis as the group to go to. Plus, it isn't like the Chinese authorities are going to stop these deals like they seem to be blocking the Qualcomm (QCOM) -NXP (NXPI) deal, amazing given that there is nothing national security sensitive about NXP's business.
Which are the best?
We have long championed Palo Alto Networks (PANW) as the soup-to-nuts cyber security platform company and this last quarter was a sight to behold. Not that long ago CEO Mark McLaughlin missed his quarter and he blamed it on a sales reorganization that didn't work. Despite Mark's amazing long-term record there were few believers. Most just thought it was a slowdown in orders.
But when the company reported in February it delivered a 97 cent quarter when everyone was looking for 79 cents. When the number came out I thought the wires had inadvertently inverted the report. It was too big a beat.
Instead it was just a colossal number and the company talked about both expanding the market and taking share.
As good as their quarter was I thought the recent Proofpoint (PFPT) quarter and a fabulous acquisition was even more spectacular. Proofpoint has been pigeon-holed as an e-mail security company. In reality it is a threat preventer going up against the ever more clever bad guys on a minute-by-minute basis. I can't believe how smart they were recently to buy Wombat for cyber crime simulation and training, both so needed at the enterprise. Proofpoint is, in some ways, a cloud king because the more email that goes into the cloud the more you need them.
Then there are two more that I would keep on my radar screen in this hack-happy environment: Fortinet (FTNT) and FireEye (FEYE) . The former is a soup to nuts cyber security company with a broad suite of products including some acknowledged best in class threat protection. What I like about it best, though, is it makes a ton of money. I really think it would make a great acquisition target for any tech company simply because of its great book of business.
I had been dubious about FireEye because of its reputation of being called in for investigative work after a hack. But then Kevin Mandia took the helm two years ago and after huge upheaval he has the company doing a lot more than just forensic work. The company has a huge number of new products hitting the market and Mandia recognizes that he's created a lot of value in a short time. I do not understand how this $3 billion market cap company can stay independent if it is able to rack up as much business as does seem to be in the cards.
Now I could easily have included Cisco (CSCO) in the equation as it has a huge cybersecurity business. IBM (IBM) , too, as it has a fantastic encryption and anti-cyber terror unit. But unlike the others you would be misplaced in your thinking if you bought IBM and Cisco just for security.
These stocks are all trading at or near their 52 week high even with today's negative action. They deserve to. As the world gets more treacherous and the three countries most dead set against our ideals roar at the President, cyber security stocks are the ultimate winners. It's not too late to buy any of them.