Cybersecurity stocks were seen soaring last Friday, after Equifax Inc. (NYSE:EFX) reported a massive data breach. Per the company, highly sensitive personal data of approximately 143 million consumers has been stolen from its database. Reportedly, nearly two-third of the adult U.S. population has been affected due to this cyber attack.
The company late last Thursday announced that a data breach occurred between mid-May and July this year, which was discovered on Jul 29. Apart from some sensitive personal information, hackers have stolen credit card numbers of about 209,000 U.S. consumers and “certain dispute documents with personal identifying information” of nearly 182,000 U.S. consumers.
This is not the first instance when consumer data has been stolen from a company’s data base. However, sensitivity of the information exposed in Equifax’s data breach case makes it one of the worst in recent times. The latest data breach at the company will likely have a lasting impact as criminals can use the stolen resources for opening new accounts, applying for credit cards or loans, buying insurance, renting an apartment or even for tax frauds.
Shares of Equifax plunged nearly 14% last Friday after news of the cyber attack surfaced.
Cybersecurity Stocks Soar
The recent cyber attack at Equifax proved that most organizations across the world lack proper security measures.
Nonetheless, believe it or not, there is a positive side to this episode. A cyber attack is good news for cybersecurity companies because it increases the chances of security-related purchases by the companies and governments. Hence, investors flock to these shares, shooting up share prices.
Equifax’s Thursday’s announcement gave a sharp boost to cybersecurity stocks, particularly identity protection security providers.
Symantec Corporation (NASDAQ:SYMC), which has been enhancing its identity-theft protection capabilities through acquisitions like LifeLock, gained the most with its shares witnessing a 3.4% rise.
This was followed by FireEye Inc (NASDAQ:FEYE), which is specialized in providing web security, email security, file security and malware analysis. The stock gained 1.5% last Friday.
Another cybersecurity company, Proofpoint Inc (NASDAQ:PFPT), went up 5.8% during trading hours. But it lost its momentum later to close at just 0.3% higher. The company is one of the leading security-as-a-service providers and focuses on cloud-based solutions for threat protection, compliance, archiving & governance, and secure communications.
Fresh Boost for Security Stocks
So far, the year 2017 has witnessed massive cyber attacks, including the two ransomware attacks — WannaCrypt or WannaCry in May and Petya in June — which created global havoc. However, the silver lining to this entire episode will be the further rise in demand for security-related products among enterprises and governments across the world. This is anticipated to drive share prices to new highs in the rest of 2017.
Furthermore, with rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.
We believe the urgency for stricter security measures will compel enterprises, as well as governments to increase spending on cyber security software. According to a Markets and Markets report, worldwide cybersecurity spending will likely reach $101 billion in 2018 and $170 billion by 2020.
Here we pick three stocks that are expected to benefit from this higher spending. Moreover, these have a favorable combination of a solid Zacks Rank #1 (Strong Buy) and #2 (Buy), with a Growth Score of A or B. Back-tested results show that this combination can handily beat other stocks.
Imperva Inc (NASDAQ:IMPV) is engaged in the development of protection software and services for business applications and databases. The stock flaunts a Zacks Rank #1 and has a Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Leidos Holdings, Inc. (NYSE:LDOS), along with its subsidiaries, provides technology and engineering services and solutions in the defense, intelligence, civil and health markets. The stock sports a Zacks Rank #1 and has a Growth Score of B.
Varonis Systems Inc. (NASDAQ:VRNS) provides an innovative software platform that allows enterprises to map, analyze, manage and migrate unstructured data. The stock carries a Zacks Rank #2 and a Growth Score of B.
Considering the above discussed factors, it makes sense to invest in this hot industry group as cybersecurity players are likely to witness sturdy growth in the near term.
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