As technology develops, so do cyber-criminals. They want access to passwords, computers, accounts and other valuable information. As a result, cybersecurity stocks have cropped up all over the place, with firms looking to secure that valuable information for their customers.
As more retailers shift to omni-channel operations and as more companies rely on technology, the need for security continues to increase. That’s even more true with the novel coronavirus. Covid-19 has millions of people working from home. So, whether using personal or company equipment, the need for information to be secure has become a top priority.
Because of that trend, investors should consider owning one of these seven cybersecurity stocks:
- FireEye (NASDAQ:FEYE)
- Palo Alto Networks (NYSE:PANW)
- CyberArk Software (NASDAQ:CYBR)
- Fastly (NYSE:FSLY)
- CrowdStrike (NASDAQ:CRWD)
- Zscaler (NASDAQ:ZS)
- NortonLifeLock (NASDAQ:NLOK)
Cybersecurity Stocks to Buy: FireEye (FEYE)
FireEye shares are not sporting the most robust gains in the industry. However, many feel that this smaller cybersecurity play may be undervalued. I agree that FEYE stock doesn’t seem to get the credit it deserves and is worth another look from investors interested in cybersecurity stocks.
On Oct. 27, FireEye reported the numbers for its third quarter. Earnings of 11 cents per share beat expectations by 4 cents, while revenue of $238 million beat expectations by more than $10 million. But there are also some conflicting signals here.
First, revenue grew just over 5.4% from the last year’s Q3. That’s not very much. However, it was also a record quarter for the company on both earnings and revenue, while margins beat expectations. Adjusted gross margins of 71% topped estimates of 70.7%, while operating margins of 12% came in well ahead of the expectations at 8.2%.
Lastly, FireEye provided Q4 and full-year revenue and earnings guidance that was ahead of analyst expectations.
The company’s swing to profitability is promising and projections call for FEYE to build on that momentum next year, too. With a $3.5 billion market capitalization, perhaps FireEye could be a mergers and acquisitions (M&A) target for another company.
Palo Alto Networks (PANW)
Speaking of earnings, Palo Alto Networks just reported its results on Nov. 16. The stock jumped a little under 6% in response as shares now flirt with new all-time highs.
A name many consider to be a leader among cybersecurity stocks, it would be impressive to see Palo Alto break out from current levels. Like FireEye, the company beat on earnings and revenue estimates.
Also like FireEye, the company provided upside guidance. PANW expects fiscal Q2 revenue in the range of $975 million to $990 million, ahead of estimates for about $971 million. For earnings, management expects $1.42 to $1.44 per share in profit, better than consensus estimates sitting at $1.35 per share.
However, there’s a reason that PANW stock is hovering near new highs: the company’s growth. Based on management’s guidance, full-year revenue should grow more than 20%.
With the rate at which companies need to protect online operations, Palo Alto — a leader in the space — should find demand for quite some time.
CyberArk Software (CYBR)
With a $4.4 billion market cap, CyberArk isn’t exactly invisible. However, it often flies under the radar when it comes to cybersecurity stocks.
The company may not have the type of explosive revenue growth we’ll see from the next few companies, but its position within the industry makes it hard to ignore. CYBR writes on its site:
“CyberArk pioneered the market and remains the leader in securing enterprises against cyber attacks that take cover behind insider privileges to attack critical enterprise assets. Today, only CyberArk delivers a new category of targeted security solutions that help leaders stop reacting to cyber threats and get ahead of them, preventing attack escalation before irreparable business harm is done.”
With that, the company services more than 6,300 businesses worldwide. What’s more, amid its mix of customers, CyberArk counts over 50% of Fortune 500 companies as well as over 35% of the Global 2000 companies.
Having those types of accounts are a big win for the cybersecurity company. It results in strong recurring revenue and could potentially make CYBR stock a takeout target down the road. Investors should keep an eye on this cybersecurity firm.
Fastly is known more as an edge-cloud computing company than as a cybersecurity firm. However, we’ve seen the novel coronavirus drastically accelerate usage for edge-cloud operators.
That’s why FSLY stock went from below $11 in March to over $120 in October. While the edge offers companies great efficiency and allows for a better experience among its end users, it also has unique vulnerabilities.
Those vulnerabilities are a key focus for cybersecurity stocks. While Fastly is primarily an edge provider, it’s now making its way into cybersecurity via its recent acquisition of Signal Sciences. That deal was completed in early October and should help Fastly leverage more revenue from its existing customers. Additionally, the company noted in its most recent report:
“Customers are increasingly relying on our platform to transform their businesses, and we are delivering on two key pillars of our long-term strategy with Secure@Edge and Compute@Edge.”
To be clear, the firm’s Secure@Edge product is in cybersecurity, while its Compute@Edge product is its edge platform.
With a Dollar-Based Net Expansion Rate (DBNER) of 147% — increasing from 137% in Q2 — it’s evident that this name is already seeing strong, additional demand from its existing customers. That makes Fastly stock a compelling cybersecurity play, despite being newer to the space.
CrowdStrike is a fan favorite when it comes to cybersecurity stocks. For one, that much is clear from CRWD stock’s meteoric rise up more than 350% from its March lows. Moreover, the company advertises on its site that it can protect user information wherever: “At the kitchen table, the cafe, a friend’s house, the office, anywhere… Protect and power your digital transformation.”
This is exactly the catalyst I’m talking about with the novel coronavirus pandemic. Because of how much more we are using our connected devices — especially from home — cybersecurity has become increasingly critical. Clearly, CrowdStrike knows this.
Additionally, the company leverages both the cloud and artificial intelligence to help protect its customers’ information. The firm says the following on its site:
“CrowdStrike was founded in 2011 to fix a fundamental problem: The sophisticated attacks that were forcing the world’s leading businesses into the headlines could not be solved with existing malware-based defenses.”
Despite being formed less than 10 years ago, CrowdStrike has soared to a $33 billion market cap and has become a leader in the space. The firm turned profitable this year and is forecast to become even more profitable next year.
Next on my list of cybersecurity stocks is Zscaler, a company that reminds me a lot of CrowdStrike. It is a little bit smaller with a market cap of $20.2 billion. What’s more, ZS stock’s performance trails CrowdStrike slightly, up over 285% from the March lows.
That said, this company is also a growth leader in its field. I like this name with its steady revenue growth and its consistent profitability.
Forecasts call for 36% revenue growth this year and 29% growth next year. Additionally, while earnings growth lags a bit this year, forecasts are downright explosive for next year. Analysts estimate an increase of 25% and 80%, respectively.
That said, the company does have about $905 million in total debt. However, with it having $1.37 billion in cash and equivalents as well as being cash flow positive for the last three years, this isn’t much of a concern.
As more companies move to the cloud, Zscaler will be there to help. That’s a shift investors can get behind.
The last on my list of cybersecurity stocks, NLOK stock has extremely promising fundamentals for any investor.
As I’ve said before, the novel coronavirus has forced many people to work from home, increasing their use of personal equipment for important professional tasks. Because of that trend, it has also become more necessary for users to have the proper protection on many of their devices. The result? An incredibly strong earnings report from NortonLifeLock on Nov. 5.
NLOK delivered a top- and bottom-line beat, while guidance was slightly ahead of estimates. Billings also topped estimates, while margins continued to head in the right direction. In fact, margins aren’t just tip-toeing higher. The company’s non-GAAP operating margin was 50.2%, up more than 20 points year-over-year (YOY) from 30.1% in Q2 of the previous fiscal year.
The company reported positive net customer additions for the second consecutive quarter and is likely to do so again in the current quarter. Finally, this stock pays out a 2.76% dividend yield, which is more than three times the payout of the 10-year Treasury yield.
On the date of publication, Bret Kenwell held a long position in FSLY.