It was never supposed to happen, but it did. In March, hackers breached EMC’s (NYSE:EMC) RSA security unit, cracking the code for the company’s SecureID “two-factor authentication” product. That gave hackers a key or “token” they could use to crack coded passwords for some of U.S. defense contractors’ most top-secret systems.
Last month, Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and L-3 Communications (NYSE:LLL) all fell victim to these highly sophisticated attacks that used the RSA keys to try to break into secure networks and access critical data.
Fortunately, two of the three companies were able to change most of the login passcodes before the hackers came back for their top-secret booty. The breach at Lockheed Martin reportedly was considered more serious.
The sophistication of the RSA breach – combined with an increase in cyber attacks from China – has lit a fire under high-value government and commercial users to expand their layers of security. After all, the same kind of attack hit Google (Nasdaq:GOOG) in early 2010.
Security experts are in agreement about one thing: there is no single silver bullet that can protect all data from all threats in every environment. The best approach is to deploy data security solutions in combination – an approach that provides defense in depth.
And that means added opportunity for companies that specialize in providing high-test, layered solutions for highly secure data and information technology environments. Obviously, all of these companies have exposure to the larger defense marketplace – and budgets will be pared down over the next few years. However, secure IT services are seen as one of the few areas of growth in the defense budget for the near term.
Here are two stocks that could do well with the heightened focus on IT security, and two that may have a little catching up to do:
Hot
Northrop Grumman: Northrop Grumman’s $8.4 billion Information Systems unit is a leading player in the space and offers one of the most innovative approaches to providing layered and “inside the perimeter” security. The company also is in a cybersecurity research consortium with three universities: Carnegie Mellon, MIT and Purdue. The consortium has developed new approaches to safeguard large-scale information systems and boost the security of cloud computing. The company’s stock has risen about 8% since mid-March and is now trading at $63.17.
SAIC (NYSE:SAI): NASA recently tapped SAIC for a $1.3 billion information technology contract to upgrade the space agency’s information systems – a key component of which will include security for those systems. Last week, SAIC said first-quarter operating income rose 12% over the same quarter in 2010 to $236 million. Earnings per share came in at 36 cents — higher than the 33 cents estimated by analysts. The stock, which has been knocked around for the past couple of weeks, may be priced to move.
Lukewarm
Lockheed Martin: Although several companies were attacked, Lockheed had to shut down all remote access to its systems and reissue 45,000 secure tokens. Security experts contacted by InfoWorld said Lockheed Martin might have been partly to blame because its own login information and passwords were also pilfered (http://www.infoworld.com/t/hacking/lockheed-hack-should-put-the-us-high-alert-329). The stock is trading at $77.38 — about 6% lower than its 52-week high in mid-February.
General Dynamics (NYSE:GD): General Dynamics’ decision to lay off 5% of its 10,000 secure information systems workforce due to projected defense budget cuts may hamper the company’s ability to keep up with leading-edge competitors in one of the more critical segments of national security spending. General Dynamics is trading at $70.70, almost 10% lower than its 52-week high of $78.27 in mid-February.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.
