Investing in the Future of Cybersecurity

  • James H. Lee

Wake Up and Smell the Coffee

About a year or two ago, I logged on my online bank account to find a $280 charge for the purchase of a dozen World Wrestling Entertainment t-shirts with expedited shipping to Hyderabad, India. I didn't realize that I was such wrestling aficionado and had absolutely no recollection of doing this. My bank (god bless them), cancelled the transaction and no harm was done.   But it served as a reminder that even fairly diligent people need to be vigilant about their data and financial activity.

Identity theft and online crime are on the rise, and your digital pockets are most likely to be picked by someone on other side of the globe.

The costs are now $445 billion per year, and growing rapidly.   Aside from the risks of bad publicity, many corporations are acutely aware of the potential impacts on their bottom line and this fits into our Digitize Me investment theme. As we all spend more time online, we'll also be spending more money protecting ourselves from threats that we cannot see.

Rather than protecting computers one desktop at a time (like Symantec, Norton, or AVG), the leaders are now providing security to entire networks.

Finding Opportunities

Companies like Checkpoint Systems (ticker: CHKP) and Juniper Networks (JNPR) are giants in this area and both appear to be reasonably priced. Palo Alto Networks (PANW) is experiencing fast growth and capturing market share, but their stock is  already up 70% this year.

My favorite here is Verint Systems (VRNT), which merges "big data" with cybersecurity. Their cloud-based platform can spot security threats through video, voice, and textual information - as well as identify opportunities to enhance customer engagement and purchasing behavior. Ten years of consistent revenue growth would suggest this is worth a second look.

For conservative investors, Cisco (CSCO) seems to offer the least volatility and the most attractive dividend yield (3.1%).

-Jim Lee, CFA, CMT, CFP®

Disclosure:  Information contained herein is for educational purposes only and is not to be considered a recommendation to buy or sell any security or investment advice. Securities listed herein are for illustrative purposes only and are not to be considered a recommendation. As of October 10, StratFI holds shares of Cisco (CSCO) in client accounts.