Ransomware attacks on businesses grew 500% last year — how to turn this into major portfolio gains

$10 million.

That’s how much Baltimore City officials approved this week to cover the ongoing cost of a cyberattack that has immobilized some of the city systems for nearly two months now.

These emergency funds were approved on Wednesday to help the hack-recovery process, which is now moving into its eighth week.

If you’re not familiar with this story, it began back on May 7. That’s when hackers launched a ransomware attack on the city of Baltimore, shutting down city computer systems. The hackers encrypted data, demanding roughly $76,000 in bitcoin to unlock the files.

Mayor Bernard “Jack” Young has refused to pay. Given this decision, some of Baltimore’s systems remain un-usable even today. For example, water billing remains offline.

So, what’s been the cost to Baltimore of not paying the $76,000 ransom?

$18.2 million.

That’s the tally from Baltimore’s budget office, which includes a combination of lost or delayed revenue and direct costs to restore systems.

As for the $18.2 million being vastly greater than the ransom demand, Mayor Young said: “We’re not going to pay criminals for bad deeds. That’s not going to happen.” He added that even if the city were to meet the ransom demands, “there’s no guarantee that if you pay, you reset your system.”

***Baltimore is just the latest city to be attacked by ransomware hackers

City governments around the nation are under assault from ransomware. The malicious software infects entire computer networks, freezing up critical files and equipment until the organization pays for a key to unlock the information.

In March of 2018, hackers shut down much of Atlanta’s city government operations. They asked for roughly $51,000 in bitcoin to release the encrypted data. City officials refused to pay. It was a decision that ultimately cost the municipality $17 million.

But the attacks aren’t limited to major cities like Baltimore and Atlanta. Just weeks ago, hackers hit Riviera Beach, Florida, a city of just 35,000 people. For three weeks, the city has had its computer systems held hostage. Emails wouldn’t going through, 911 calls were unable to enter into computer records, and city systems such as water utilities were offline. All of this because someone in the government “clicked on an email.”

Unlike Atlanta and Baltimore, Riviera Beach’s city council just voted to pay the $600,000 in bitcoin that the hackers have demanded.

Interestingly, experts say this decision could set Riviera Beach up for even more hacking attacks, since the municipality has now proven it’s willing to pay.

***This problem isn’t going away

A report from Recorded Future claims at least 170 state and local governments in the U.S. have been targets of ransomware attacks since 2013. And the cybersecurity company, Malwarebytes, reported in April that ransomware attempts on businesses jumped 500% just last year alone.

Cybersecurity Ventures predicts that global cybercrime will cost upwards of $6 trillion (that’s trillion with a “T”) annually by 2021. That’s up from $3 trillion in 2015.

On a side note for all you crypto fans, estimates are that by 2021, more than 70% of all cryptocurrency transactions will be used for illegal activity. Current estimates range from 20% (of the five major cryptocurrencies) to nearly 50% (of bitcoin).

***While playing defense against these attacks is critical for you personally, there’s a way to play offense with your investments

That’s because the same attacks that cripple city governments are tailwinds driving huge profits for certain cybersecurity companies.

Louis Navellier’s Breakthrough Stocks subscribers are already aware of this, as one of Louis’ picks is the cybersecurity company, CyberArk — now up over 42% since Louis’ February recommendation.

Here’s what Louis wrote about the company in his recommendation:

CyberArk is leading the charge to protect businesses against cyber attacks. The company provides privileged access security, which protects a business’ assets, data and infrastructure in the cloud, development pipeline and in-house. It’s a complete security solution that allows CyberArk Software’s customers to prevent cyber attacks, not just react to them.

As a result, CyberArk Software’s security solutions are in top demand. About half of the Fortune 500 and more than 30% of the Global 2000 turn to CyberArk to protect their business against malicious cyber attacks. The company partners with more than 4,200 businesses around the world, and it has offices in the U.S., U.K., Europe and the Asia-Pacific.

Louis’ February recommendation was well-timed. The company had a huge earnings-beat that month. Then another in May – posting 34% annual revenue growth and 114% annual earnings growth. Adjusted earnings soared 82.2% year-over year.

It’s this strong earnings performance that’s behind the 42%+ gains in less than five months.

***Strong earnings performance is the foundation of Louis’ stock selection system

If you’re less familiar with Louis’ approach to the markets, it’s actually quite simple. He tunes out the stories, hype, and headlines, and focuses on the one thing that really matters …

Numbers.

Is a company posting good sales numbers? And not just in the latest quarter …but over time? Are its earnings meeting Wall Street’s expectations? Better yet, are they exceeding them?

In the long term, the answers to these questions determine whether your investment will provide you great returns … or lose you money. That’s because what drives stock prices over time are earnings. It’s that simple.

Given this, in Breakthrough Stocks, Louis uses a proprietary 8-point system that focuses on numbers and quantitative factors. Doing this enables Louis to identify a select group of superior stocks that are poised for significant outperformance, like CyberArk, which currently holds an “A” rating.

***So, what are Louis’ eight criteria?

Positive Earnings Revisions. He looks for stocks that have had their earnings estimates increased by Wall Street analysts. This is often a tip-off that a stock is about to beat earnings expectations.

Positive Earnings Surprises. Louis looks to see if a stock has been able to beat its earnings estimates in the past, and by how much. This is important as it often indicates that the stock has been overlooked — so far — by Wall Street.

Increasing Sales. Louis wants a company that can consistently grow its sales over time. That’s because this sales number is hard to fake. Sales growth is a solid indicator.

Expanding Operating Margins. This indicates whether earnings are growing faster than sales. A company that’s able to expand its operating margins is usually a company that has a dominant position in its industry.

Free Cash Flow. This is how much money a company has left over after paying the costs of its business. Strong cash flow is important because it allows a company to invest more resources in growing its business.

Earnings Growth. Louis tells us that this is the heart of all good financial analysis. As long as a company is able to grow its organic earnings consistently, its stock will do well over the long term.

Positive Earnings Momentum. In addition to earnings growth, Louis wants to see earnings growing rapidly.

Return on Equity (ROE). Finally, ROE indicates how efficiently a company is managing its resources. Louis considers ROE to be a “report card” for how well management is doing at generating company returns on equity.

Putting it all together, when a company rates highly on all eight factors, it becomes a strong buy in Louis’ system. When it doesn’t … it becomes a sell.

***Finally, there’s one more aspect of Louis’ Breakthrough Stocks that’s critical to big returns

Size. You see, in Breakthrough Stocks, Louis focuses exclusively on small-cap stocks. Why?

From Louis:

If you’re looking for growth — even in periods when growth becomes scarce — small-cap stocks are where you’ll get it.

This is because small-cap companies have much greater potential to produce giant returns for their shareholders in a short time than any other kind of company.

The reason is simple.

It’s much, much easier for a young, $500-million small cap to grow 10-fold than it is for a mature $500-billion giant to grow 10-fold.

That’s just basic math. If your daughter sold 10 boxes of Girl Scout Cookies around the neighborhood on her own, you could probably help grow her results 10-times (selling 100 boxes) by driving her around and putting a little pressure on your friends or coworkers to buy some boxes.

What if your daughter was a natural saleswoman and had sold 100 boxes on her own? To enjoy 10-times growth under that scenario, she’d have to sell 1,000 boxes. Not so easy anymore. That’s the mathematical challenge behind enjoying giant growth when a company is already doing giant sales.

Louis’ focus on small-cap companies means there’s a greater chance of triple digit gains than were his focus on mega-cap stocks.

***As we wrap up, cybercrime is a major danger — and is only getting worse — but this trend is supporting gains from quality cybersecurity companies, like CyberArk

On that note, Louis likes the stock up to $144, so there’s still room to establish a position even after its 42% gain since the original recommendation.

And if you’d like to be in on this type of gain from the beginning, click here to learn more about Louis’ Breakthrough Stocks system.

Have a good evening,

Jeff Remsburg