It seems like every other day there's an announcement of a data-security breach. There were 395 breaches in 2014's first half alone, with major victims including Target (TGT), Neiman Marcus and U.S. Nuclear Regulatory Commission.
But now, retailers face an October deadline to upgrade point-of-sale systems to make them more difficult to "clone," according to Experian. That's good news in the long term, but Experian expects hacks to increase before October as criminals try to do as much damage as possible while they still can.
Of course, there's a solution to every crisis -- as well as a trading vehicle to profit for it.
In fact, there are many publicly traded companies that you can purchase that specialize in different aspects of cybersecurity.
The granddaddy of them all is Palo Alto Networks (PANW). Unfortunately, PANW trades at around $190, so small investors might find themselves able to purchase only a few shares. That's why I favor the ETF approach with this sector.
ETFs offers an easy way to own a diversified range of companies within one basket, bought and sold like a single stock with nice liquidity. ETFs are also pretty transparent -- you know what's in the basket, you can go long or short and you can even trade ETF options.
I like the PureFunds ISE Cyber Security ETF (HACK). Launched last November, HACK is an equal-weighted index that targets cybersecurity hardware, software and services companies.
This ETF has international exposure, and its top five holdings are FireEye (FEYE), CyberArk Software (CYBR), Infoblox (BLOX), Palo Alto Networks and Fortinet (FTNT).
And when you consider that one share of PANW costs around $190 and HACK trades at about $31, I view HACK as the better option for many investors. You can hold it in an appropriate size while getting exposure not just to Palo Alto Networks, but also to other leading stocks in the sector as well (eliminating the "right church/wrong pew" syndrome).
Let's look at HACK's chart:
Looking to the left, you'll see that the 50-day moving average has historically been a relevant support level, and the HACK's price is pretty much there now. (The 50-day moving average continues to meander to the upside.)
The Moving Average Convergence Divergence (MACD) is ready to cross up, creating a buy signal. The histogram has also been stair-stepping upward, which is a bullish indicator as well. Relevant strength is likewise improving, and the stochastics are on a buy signal as the price has consolidated on the 50-day moving average.
As HACK is sitting on such support levels, I consider now to be a low-risk entry point for this ETF -- keeping a stop right under the 50-day moving average.