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  1. Home
  2. / Investing
  3. / Technology

Cyber-Security Stocks Look Like Safe Bet

You don't have to be a hacker to make money off of data breaches.
By ADAM SARHAN May 22, 2015 | 10:00 AM EDT
Stocks quotes in this article: HACK, CUDA, CYBR, FEYE, FTNT, BLOX, JNPR, PANW

Cyber-security threats are a serious issue that's growing exponentially and will continue to do so for years. We've seen a huge spike in data breaches over the past few years, including major incidents at the White House, Target and Home Depot. It all reminds me of the computer-virus problems of the 1980s and '90s. There was lots of money to be made then, and there's lots of money to be made now.

A handful of cyber-security companies have gone public in recent years and are now emerging as a leading group on Wall Street. An easy way to play the sector is to buy the PureFunds ISE Cyber Security ETF (HACK). As for individual stocks, some of my favorites, in alphabetical order, are Barracuda Networks (CUDA), Cyberark Software (CYBR), FireEye (FEYE), Fortinet (FTNT), Infoblox (BLOX), Juniper Networks (JNPR) and Palo Alto Networks (PANW).

The fundamental case to invest in this nascent and growing space is strong. According to Forbes, Target's 2013 data breach cost the retailing giant approximately $150 million, while Home Depot's incident set the home-improvement chain back $62 million. A separate study showed that total worldwide costs for data breaches topped several-hundred-million dollars in 2014 and are growing at an astronomical rate.

This all translates into a huge opportunity for cyber-security firms. After all, the threat is worldwide rather than limited to one country, and most cyber-security companies offer subscription services that generate recurring revenue rather than one-time payments. So, the market for their services is virtually endless. Cyber-security threats are also here to stay regardless of what happens with the Fed, the broader economy or almost any other factor that can adversely affect stocks.

Furthermore, the sector is fragmented and ripe for consolidation -- think of airlines 10 years ago -- which should bode well for the future. Naturally, some of the older and larger tech names could easily come into the space and buy a few of the emerging players. Or, a few small players might want to merge for strategic reasons.

The technical case for the sector is also strong, as many stocks are trading near their respective 52-week highs and above important moving averages.

The bottom line: It behooves each of us to protect our data -- and these stocks are well-positioned to profit from this basic need.

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At the time of publication, Sarhan was long HACK, PANW and CYBR, although positions may change at any time.

TAGS: Investing | U.S. Equity | Technology

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