Our long-standing readers know we are bullish on cybersecurity stocks and have been for a while. Most recently, in May we wrote an article outlining our bullish fundamental and technical thesis for cybersecurity stocks.
Our bullish thesis has not changed: We still believe the fundamental and technical case for investing in this space remains very strong. One of the byproducts of the online, interdependent and very "connected" world we live in is that cybersecurity threats are a massive issue. Moreover, cyber-threats are growing exponentially and will continue to do so for many years to come.
We've seen a huge spike in data breaches over the past few years, including major incidents at the White House, Office of Personnel Management, Neiman Marcus, Target (TGT) and Home Depot (HD). It 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.
As a refresher: A handful of cybersecurity companies have gone public in recent years and are 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 CyberArk Software (CYBR), FireEye (FEYE), Fortinet (FTNT), Infoblox (BLOX), Juniper Networks (JNPR) and Palo Alto Networks (PANW). (Fortinet is part of TheStreet's Growth Seeker portfolio.)
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 cybersecurity firms. After all, the threat is worldwide and most cybersecurity companies offer subscription services that generate recurring revenue rather than one-time payments. So the market for their services is virtually endless. Cybersecurity 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. Watch out for earnings; FTNT gapped up on Thursday after reporting earnings.
The bottom line: It behooves each of us to protect our data -- and these stocks are well-positioned to profit from this basic need.