One of the toughest tasks of an investment analyst is to pick out stocks to buy that will increase in relevancy over the next several years. But when it comes to cybersecurity stocks, there’s no question: this sector will not only grow, but the dynamics involved virtually guarantee robust progression.
First, let’s look at the costs associated with cyberattacks. According to a 2018 data breach study, the average global cost per incident is $3.86 million. This figure increased over 6% from the prior year. Further, the scope of cyberattacks have steadily increased, indicating that hackers are increasingly savvy and emboldened. Thus, the need for defensive mechanisms is strong, bolstering the case for cybersecurity stocks to buy.
Second, no digital platform is really safe without effective countermeasures. That’s according to Adam K. Levin, former director of the New Jersey Division of Consumer Affairs and author of “Swiped: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves.” Addressing a new threat called e-skimming, Levin stated:
Unlike ATM skimming, where you may be able to see the hardware, e-skimming takes a virtual approach that is much harder to detect and is less risky for the criminal.
This segues into another point about the implications for cybersecurity stocks to buy: security breaches affect us all. Whether you’re the CEO of a powerful multinational organization, or an average Joe or Jane buying tickets to the game online, the specter of a costly hack is always present.
The war between hackers and protectors will probably persist until the end of time. You might as well benefit from it with these seven cybersecurity stocks to buy:
International Business Machines (IBM)
Although cybersecurity stocks to buy have tremendous long-term potential, not all are backed by stable fundamentals. Typically smaller and focused on a singular purpose, the sector sometimes features volatility. And that’s why I like International Business Machines (NYSE:IBM). With IBM stock, you receive multi-pronged exposure to relevant tech segments, including cybersecurity.
Because IBM is itself a massive enterprise, it best knows the needs for large-scale organizations. And according to a cyberattack study they conducted with the Ponemon Institute, the time required to fix breaches is sobering. On average, it takes 279 days to identify and contain a breach. Moreover, the lifecycle of a malicious attack from breach to containment averages 314 days. Thus, IBM stock is more than just a dividend play.
And as I mentioned earlier, the company offers exciting exposure to relevant tech sub-segments, such as cloud for enterprises and artificial intelligence. Plus, IBM stock is a recovery play, giving you better potential for upside.
Palo Alto Networks (PANW)
One of the vanguards of cybersecurity stocks to buy, Palo Alto Networks (NYSE:PANW) is primarily known for developing cutting-edge network firewalls. Over the years, Palo Alto has consistently won industry accolades for their extensive security platforms. As well, PANW stock is among the most reliable winners in this hectic sector.
An exciting component of Palo Alto is their investment in AI platforms. In the olden days of cybersecurity, countermeasures involved responding or reacting to data breaches. But with Palo Alto’s suite of defensive mechanisms, their system identifies potential threats and eliminates them. In this industry, an ounce of prevention is worth several million dollars. And that’s why PANW stock typically tops lists of cybersecurity stocks to buy.
To be fair and upfront, though, Palo Alto shares experienced some wild trading throughout this year. However, PANW stock appears to have stabilized since late August. Thus, this might be an opportunity to buy shares at a discount.
Another historical top performer among cybersecurity stocks to buy, Fortinet (NASDAQ:FTNT) made its name through producing various countermeasures. These include firewalls, anti-virus software, intruder prevention systems, and endpoint security protocols. Not surprisingly, FTNT stock tends to have a similar trajectory like PANW. If you want a relatively reliable winner in this sector, Fortinet is a solid pick.
But as cyberthreats advanced, so did the company. A particular dynamic management addresses is known as digital transformation. As companies adopt various new technologies, this ironically increases the surface area for data breaches. In other words, as an organization grows, some of its branches may be more vulnerable than others.
To protect clients in this new era, Fortinet introduced a cohesive cybersecurity blanket. Combining all countermeasures under a centralized command point, Fortinet can deliver effective solutions across an enterprise’s business spectrum. It’s this kind of next-level thinking that makes FTNT stock a compelling buy.
Check Point Software Technologies (CHKP)
A popular and established name among cybersecurity stocks to buy, Check Point Software Technologies (NASDAQ:CHKP) earned a reputation for providing combined hardware and software solutions for IT security. But because of the ever-evolving nature of online threats, Check Point had to adapt to a new reality. And this is what makes CHKP stock so interesting.
In recent years, the risk of ransomware has struck fear among corporations and individuals alike. An especially nasty form of malware, ransomware encrypts a victim’s files. In order for the affected to regain access to their system, they must pay a ransom.
According to Check Point’s website, in 2016, victims collectively paid $1 billion in ransoms. Fortunately, the cybersecurity firm offers a solution, providing AI platforms that detect and quarantine possible ransomware attacks. Furthermore, if an attack occurs, Check Point’s security system springs to action immediately, mitigating damages and working toward data restoration.
CHKP stock has taken a beating since spring of this year. The bearishness might be overdone, though, considering the underlying company’s effectiveness in addressing next-generation threats.
Despite the tremendous upside potential for cybersecurity stocks to buy, they’re not immune to analyst downgrades: just ask stakeholders of CrowdStrike (NASDAQ:CRWD). Although one of the leading players in cloud-based endpoint security, Citi Research analyst Walter Pritchard didn’t view that as an asset for CRWD stock.
Instead, Pritchard views the endpoint market as competitive and crowded, initiating a “sell” rating on CRWD stock. He further cited other cybersecurity stocks to buy that may offer superior exposure to this market.
Granted, this tech segment doesn’t always offer stable returns. Thus, I can understand why Pritchard is hesitant on CRWD stock. However, for contrarians, they should consider the growth narrative. In its quarter ending July 31, 2019, CrowdStrike generated revenue of $108.1 million. That’s up 94% from the year-ago quarter.
Put another way, Citi Research may have done you a favor by giving you a discount on CRWD.
Most of the cybersecurity stocks to buy on this list concentrate their resources on enterprise-level security measures. And while Symantec (NASDAQ:SYMC) once did the same, they also feature a healthy platform for personal online security. Thanks to their Norton and LifeLock brands, SYMC stock is a well-known commodity.
Since around mid-September of this year, though, SYMC stock has started to slip in the charts. But from a longer-term perspective, I view this as a temporary blip on the radar. With cybercrimes rising in both frequency and scale, the need for identity theft protection increases in lock step. With Symantec specializing in this arena, I believe the outlook for SYMC stock is positive.
Also, due to the growth-centric nature of this industry, most cybersecurity stocks to buy don’t provide passive income. However, Symantec offers a dividend, which is a rarity. Of course, the yield of 1.31% is nothing to write home about, but it at least provides some measure of protection.
Sometimes, cybersecurity firms are at war with each other. Take for instance last month’s dust-up between cloud-based security provider Zscaler (NASDAQ:ZS) and industry leader Palo Alto Networks. In early September, Palo Alto claimed that they “displaced” Zscaler as a supplier to two major companies. That comment sent ZS stock tumbling.
In response, Zscaler CEO Jay Chaudhry dismissed Palo Alto’s remarks as nervousness from a legacy provider. Chaudhry continued his rebuttal, noting that “To do cloud security right you need to have purpose-built architecture. You can’t take the legacy boxes and stick them in a cloud and say it’s cloud security.”
He has a point. With enterprises adopting cloud architecture at a significant rate, the threat of data breaches only increases. Since several people are connected to the cloud, one exposed vulnerability could impact the whole system.
As a smaller, mission-focused company, Zscaler theoretically enjoys better agility than the bigger names. That said, ZS stock is one of the riskiest names you could buy right now, although the reward potential is also strong.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.