NYSE Trading Glitch Adds Up to One Huge Opportunity

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If you are afraid of a robot apocalypse, Wednesday was a bad day for you. While there weren’t laser-wielding androids running amok on Main Street USA, there were plenty of high-tech hijinks out there to spark fears of a worldwide computer meltdown creating plenty of havoc.

Cybersecurity, avoiding hackers

First, United Coninental Holdings (UAL) had to ground some of its planes based on computer issues. Then, the NYSE had to halt trading as a programming glitch mucked up the market — at the same time the world’s leading financial publication, The Wall Street Journal, suffered an outage of its own, by the way.

Technological breakdowns like these don’t bode well for businesses and consumers that rely on computers. And when these things happen all at once, it suggests the concerted efforts of hackers — or, if you’re a sci fi fan, that Skynet has launched.

For the savvy investor, however, there may be an opportunity amid Wednesday’s mayhem.

Namely, cybersecurity.

Cybersecurity Stocks More Important Than Ever

I have been harping on this trade for a while, including this column back in February and my call-out of the Purefunds ISE Cyber Security ETF (HACK) as one of the best funds for June.

And given the events of Wednesday, the trade seems even more important to protect your portfolio in this digital age.

Let’s start with the diversified HACK cybersecurity ETF. As America’s first cybersecurity-focused ETF, components of this fund all help businesses and consumers protect businesses, governments or consumers from fraud and abuse at the hands of hackers.

In a high-growth area like cybersecurity, there tends to be a general run-up followed by a period of painful consolidation. And while that’s great if you’re holding a winner that gobbles up market share or gets bought out for a massive premium, it stinks if you are holding one of the losers.

So you can play it safe and just buy the entire basked of frontrunners via the HACK ETF. Check out the official website for more details on HACK, including a full list of holdings.

If you want individual names that are focused bets, however, I do have two in particular I’m watching:

Palo Alto Networks (PANW) is up an impressive 41% YTD and 130% in the last year to demolish the returns of other tech stocks. That’s because of brisk growth, with 50% revenue expansion this year and another 35% expected in FY2016, as well as a solid balance sheet and substantial profitability. I can’t overstate the power of having a cash-flow-positive business and some $800 million in cash and investments when other mid-sized cybersecurity stocks are bleeding red ink.

Fortinet (FTNT) is another good option. The mid-cap is a bit smaller than PANW, but that means more explosive growth potential. It’s up 32% YTD, and 70% in the past year thanks to consistent growth of its own in both the top and the bottom line. To me, 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. It’s also digestible as a buyout target, but not so small it could go to zero if it hits a bumpy patch.

Since it’s a hot name, I might as well address FireEye Inc. (FEYE), which has been having a good year with a 50% move upwards since January 1 and is surely on investors’ minds when it comes to cybersecurity stocks.

Unfortunately, I don’t see FireEye in the same league as the others, because it remains unprofitable — and in fact is still down precipitously from its 2014 high of more than $80 per share. I simply don’t see this recently IPO as stable as the rest, even if there is a tailwind for the sector at large.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com 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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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/nyse-trading-glitch-cybersecurity-stocks/.

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