Tech stocks have always been powerful agents of change. But increasingly, the technology sector is focused on fending off bad actors instead of forging ahead with new gadgets and internet capabilities.
Whether it be the 2013 data breach of Target Corporation (TGT) or the hacking of Sony Corp. (ADR) (SNE) by North Korea, a series of high profile and high stakes cybersecurity issues have brought the importance of digital protection to light.
The risks to consumers and businesses is clear. But for the savvy investor, there may also be big growth opportunities in the years ahead. The key is to get into the right names before the next big breach happens — and it will happen, sooner or later.
If you’re looking to play cybersecurity, here are three tech stocks to consider.
Palo Alto Networks (PANW)
Palo Alto Networks Inc. (PANW) is up more than 150% in the past year — obliterating the 12% return for the S&P 500 in the same period. There’s good reason for that performance, as PANW stock finished fiscal 2012 with $255 million in revenue and is forecast to hit about $880 million in revenue this year — almost 250% growth.
While the lack of profits isn’t great, the company is well capitalized with over $1.1 billion in cash and investments on the books. For a company that just went public back in 2012, this is remarkable considering the number of tech stocks that struggle to get by in their first few years.
Palo Alto Networks just saw its earnings soar in March, and has raced up about 30% in 2015 despite volatility elsewhere in the market. As cybersecurity remains in focus, consider PANW one of your best tech stocks to buy now.
Fortinet Inc. (FTNT) is even smaller than PANW, with a market cap of only about $6.7 billion.
And while it is “only” up 85% in the last year, it is still just as attractive as Palo Alto when it comes to cashing in on cybersecurity — in large part because it is smaller and a very attractive acquisition target by bigger players like Cisco Systems, Inc. (CSCO).
Like Palo Alto and some bigger players, FTNT is already operating at a small profit and sitting on some cash as well as seeing great top-line growth. In fact, its nearly $1.1 billion in cash represents about 16% of its market cap right now!
As for fundamentals, FTNT stock has seen impressive top-line growth to $770 million in fiscal 2014, up almost 80% from $433 million in fiscal 2011. Furthermore, that revenue should grow to over $940 this year for another 22% jump in sales on top of that.
Fortinet is the perfect “Goldilocks” cybersecurity stock that’s not too big and not too small. It has big clients including the Nasdaq OMX exchange and Big Ten school Indiana University, but is also small enough that growth metrics can still be impressive in the years ahead. That makes it a big buy among those looking for tech stocks with high growth potential.
Check Point (CHKP)
Check Point Software Technologies (CHKP) is a network security specialist that has been doing quite well recently. Shares are up about 35% in the last year, tripling the S&P 500’s performance in the same period.
Check Point is a $15.7 billion company that is a bit more established than some of the smaller players, so growth metrics aren’t as jaw-dropping. Still, CHKP stock is light-years ahead of most dedicated cybersecurity firms in terms of profitability. As a result, it has no debt and an impressive $3.4 billion or so in cash and investments — one-fifth of its entire market capitalization.
What’s more, the reliable profits actually allow the company to commit to stock buybacks in a big way. At the beginning of this year, for instance, Checkpoint announced an expansion of its multi-year repurchase program to $1.5 billion in total — roughly one-tenth of the company’s current value!
The company is still growing, too, with both revenue and profits moving up steadily.
If you’re looking for a stable player with a great balance sheet, this cash-rich stock with an ambitious repurchase plan is the way to go.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
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