Some things are inevitable. The sun will rise in the east and set in the west. Taxes must be paid. Politicians will lie to get elected. Dwight Howard will miss most of his free throws. The summer race at Daytona will have a rain delay. These things will happen.
Growth in the cybersecurity sector is almost as inevitable. As more of our lives moves online, criminals and other assorted bad guys are learning to use the Internet.
Today, you can steal more money with a mouse than with a gun or a briefcase, and nations that don’t like each other have found that they can do as much damage with bytes and bits as they can with bullets and bombs.
At a recent banking conference, the bankers I spoke with told me that cybersecurity was one of their biggest concerns. The problem is real, and the solutions are ongoing in nature and expensive.
The current market weakness is a good time to start searching for cybersecurity stocks to own for the long term.
Cybersecurity Stocks to Buy: Vasco Data Security International, Inc. (VDSI)
Vasco Data Security International, Inc. (VDSI) makes hardware and software security systems that manage and secure access to information assets worldwide.
VASCO is the world leader in providing two-factor authentication and digital signature solutions to financial institutions. They currently service more than half the largest 100 banks in the world and have more than 1,700 financial institutions as customers.
Their products are also used by governments, education systems, healthcare and gaming companies to protect data and applications.
The company has been growing at more than 20% a year, but fell short of Wall Street’s high expectations this year, and the stock has dropped to the level where it could be considered a bargain. Currently, the stock trades at just 10 times earnings and the EV/EBIT ratio is 6.9 right now.
Cybersecurity Stocks to Buy: Unisys Corporation (UIS)
Unisys Corporation (UIS) is my stealth cybersecurity pick.
This is not just because you would not normally think of the company as a cybersecurity company, but because the name of its award-winning cybersecurity product is, in fact, Stealth.
Stealth uses micro-segmentation and cryptography to strengthen your security and deflect threats in private and public clouds. They also offer a mobile Stealth product that is identity driven and protects your data from unauthorized access.
Unisys is in the midst of a culture change under new CEO Peter Altabef that will allow it to focus on a more vertical sales approach, and I expect it to be a major player in the cybersecurity space going forward.
While Stealth and other security offerings drive growth, the new cost-cutting programs will also increase the bottom line by a substantial amount over the next few years. The combination could make this once-sleepy stock a market leader.
Cybersecurity Stocks to Buy: Kratos Defense & Security Solutions, Inc (KTOS)
Kratos Defense and Security Systems (KTOS) is involved in most segments of modern warfare, including drone technology, combat systems, critical infrastructure, cybersecurity and electronic warfare.
It offers products that help the military and other government agencies protect their data from hacking attempts. They also offer cybersecurity assessments and training programs.
Kratos has developed expertise in satellite cybersecurity as well.
Electronic warfare is going to be a big part of future conflicts, and Kratos should see strong growth from helping the U.S. government prepare for and execute cyber-attacks.
As of this writing, Tim Melvin owned shares of UIS and KTOS.