Massive retailers like Target Corporation (NYSE:TGT) and Home Depot Inc (NYSE:HD) and the world’s largest financial institutions like JPMorgan Chase & Co (NYSE:JPM) and Citigroup Inc (NYSE:C) have been hacked in the past few years, despite advanced security systems in place.
And lawyers are beginning to look into corporate liability for giving up customers’ sensitive information.
Needless to say, most companies and individuals are finally waking up to the pervasive needs of robust cybersecurity. Companies can’t even keep hackers out after spending more on their IT than some developing nations spend on their entire economies. The world is spending $71 billion on this industry, and the sector is still very young.
That’s why cybersecurity stocks have been roaring in the past year. While the market has climbed a mere 12.5%, Check Point Software Technologies Ltd. (NASDAQ:CHKP) is up 20%, Fortinet Inc (NASDAQ:FTNT) soared almost 50%, and VASCO Data Security International, Inc. (NASDAQ:VDSI) has surged a startling 230%.
Let’s take a closer look at each to see why these are the best cybersecurity stocks to buy.
Check Point Software Technologies Inc (CHKP)
With a 20% 12-month gain, Check Point Software Technologies Ltd. (NADSAQ:CHKP) is the slacker of the group. And it still has plenty of headroom for 2015.
CHKP’s claim to fame is its Software Blade architecture, which is a very flexible and effective security architecture that allows CHKP to service the needs of clients of all shapes and sizes. On the consumer side, CHKP builds ZoneAlarm to keep hackers, spyware and identity thieves away from your data.
At the end of January, FBR Securities raised its price target to $90 — 16% higher than current prices — and upgraded the stock to an “Outperform.”
The company reported earnings in late January, and while earnings missed on the downside, revenue was higher than expected. And that suits CHKP just fine since management has stated that its goal is to increase revenue (aka grow its business), which usually has a short-term effect on earnings.
Basically, you’re spending money to acquire customers and since not everyone will become a customer, you lose money on some of your efforts. But the customers you get, given the huge margins in the business, will boost earnings over the long term, as you build a bigger customer base.
Fortinet Inc (FTNT)
Fortinet Inc (NASDAQ:FTNT) is also in growth mode, which has knocked the stock down since it quarterly numbers were announced. But it’s all part of larger plan and the next stage in the company’s growth efforts.
Fortinet acquired XDN Inc, a cloud-based content solutions provider, a couple years ago, which will certainly help expand FTNT’s business into the cloud. Its main product is its FortiGate solutions architecture.
FTNT has been around since 2000, so it has seen market highs and lows and also has been around to establish a solid reputation in the enterprise and network security sectors.
In the past year, FTNT stock has risen almost 50%, and its recent results, as well as a jittery market have slowed down its growth track. After a selloff on its earnings report, the stock has continued hitting higher lows, which is a bullish sign.
And having a good, longstanding reputation in the sector is going to become increasingly valuable as the space matures.
Vasco Data Security International (VDSI)
The overachiever of the group is Vasco Data Security, Inc. (NASDAQ:VDSI), up more than 200% in the past year.
But, when things go up, they also come down. In the past month, VDSI has pulled back 10%. And it has a growing amount of short interest in the stock, which means a growing number of investors are expecting the price to go down before it goes up.
Given that half of the shares are institutionally owned, there’s likely a fair amount of big money hedging their gains by putting shorts on the stock in case an unforeseen event driven selloff happens to the markets or the sector.
On the other hand, Vasco still is up 200% in the past year. And the thing about short interest is, if the stock starts to rally, the shorts will have to cover at higher and higher prices, causing what’s called a short squeeze. Short squeezes accentuate the run of the stock to higher levels.
Its key sectors are banking and financial services, which is a good place to be. And their clients tend to be big players in smaller markets, like Norway or Colombia. But that’s a great niche when competing with bigger firms that don’t focus on those clients and smaller competitors that don’t have the experience or reputation to grow their business with these unique clients.
And the global slowdown shouldn’t be too difficult to work through since these companies need what VDSI is selling and the costs aren’t that much of an issue to them.
VDSI is going to be volatile here, so if you buy in, think of this as an investment in cybersecurity growth for the long term, not a quick trade on a trendy sector.
Louis Navellier is the editor of Blue Chip Growth.
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