It’s been a rough run for stocks, an even worse run for tech stocks and a downright awful run for growth stocks. Additionally, cybersecurity stocks haven’t been able to sidestep the pain either — not by a long shot.
However, this group has held up better than many of its growth-related peers. Furthermore, the group has shown signs of wanting to rally. What do I mean by this?
Many of these names have been rallying after earnings, even if the stocks have gone on to slump later. Moreover, many of these stocks were at or near their highs in November. That’s at the same time that many growth stocks were carving out new multi-month or multi-quarter lows. Lastly, a few have been able to hit new highs this year.
So it’s not that cybersecurity stocks are exempt from the selloff necessarily. That’s clear when looking at the charts. However, when the pain ends, I think the investment dollars will really flow back into this space.
A recent example of this is how Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) announced that it is acquiring cybersecurity firm Mandiant for $5.4 billion. This move was a sign of how vital this space is right now, and according to Investopedia, the deal will “enhance the security and offerings of Google Cloud.”
So, with all of that in mind, let’s look at seven cybersecurity stocks to watch now.
- Palo Alto Networks (NASDAQ:PANW)
- CrowdStrike (NASDAQ:CRWD)
- Fortinet (NASDAQ:FTNT)
- ZScaler (NASDAQ:ZS)
- CheckPoint Software (NASDAQ:CHKP)
- NortonLifeLock (NASDAQ:NLOK)
- Global X Cybersecurity ETF (NASDAQ:BUG)
Now, let’s dive in and take a closer look at each one.
Cybersecurity Stocks to Watch: Palo Alto Networks (PANW)
Perhaps one of the most well-known names in the space, Palo Alto Networks weighs in with a market capitalization just above $50 billion. In fact, this name has been downright impressive.
There are not many stocks that are trading well right now, particularly in the tech space. However, Palo Alto Networks hit a new high just today.
Impressively, we also didn’t see a pop-and-drop after the company reported earnings or some foolish headline that temporarily drove it higher. Instead, the company reported a top- and bottom-line beat on Feb. 22. Revenue grew almost 30% year-over-year (YOY), while shares rallied almost 30% in the days following the results.
Interestingly, shares actually fell slightly the day after it reported, as market-wide volatility kept a lid on any optimism. While that’s not always the case, it’s something to keep in mind in this type of environment.
While it’s hard to imagine a company plunking down the necessary cash to acquire PANW stock — particularly while the stock is near its highs and as many other great companies are down considerably — Palo Alto should continue to do well for years to come.
There’s good news and bad news with CrowdStrike. The good news is that, even though shares are down more than 25% from the high, it’s holding up much better than a number of growth stocks. On the downside, well, it’s down more than 25% from the highs and badly underperforming stocks like Palo Alto.
When it comes to cybersecurity stocks, though, this is definitely one to keep an eye on.
Analysts expect almost 50% revenue growth this year, followed by estimates calling for 35% growth next year. In the meantime, CrowdStrike is already profitable and is forecast to keep growing the bottom line.
Moreover, analysts expect earnings to grow 63% this year and 47% next year. Admittedly, those are just estimates. However, it’s something to keep an eye on and a consideration to make when looking at long-term plays in the space.
Cybersecurity Stocks to Watch: Fortinet (FTNT)
Many of these stocks weigh in with healthy and strong market caps. In the case of Fortinet — and like CrowdStrike — the company is valued at more than $40 billion. When it comes to acquisitions, that is a pretty big pill to swallow.
Alphabet has one of the strongest balance sheets on Earth and despite that, it opted for a $5.4 deal for Mandiant. That’s not to say some of the larger players can’t be acquired, but that’s something to consider when looking for mergers and acquisitions (M&A) candidates.
Shares are down about 12% from the highs, but the company is solidly profitable and continues to grow. As such, analysts expect 24% earnings growth this year and 20% next year. Also, revenue growth expectations for the next two years are above 20% too.
So the growth is there, it’s just a question of how the market will handle these names. Regardless of what the market dials up in terms of volatility, there is going to be continuous demand from enterprises for cybersecurity. Whether that’s in tech, retail or any other industry, it doesn’t matter. The cyber-attacks will continue and thus, the need to defend against them will be there.
While ZScaler is profitable, it’s leaning more on revenue growth to drive its stock higher at the moment. Analysts expect 56% revenue growth this year, but then 36% growth next year.
With that be enough to continue driving the stock higher?
Unfortunately, this one hasn’t been able to escape the selling pressure, whether it’s the valuation or its higher growth rate (or both) as the culprit. Regardless of the “why,” though, it’s hard to deny that shares are down hard. In fact, the stock has tumbled more than 35% from its high.
With a $28 billion market cap, ZScaler is on the smaller side — at least among this list. But like the others, I wouldn’t bet against its long-term potential, particularly as earnings continue to climb. When the company reported its latest results on Feb. 24, management said that in addition to strong revenue growth, the company generated “over 50% growth in operating profits and free cash flow.”
Furthermore, from the company:
“Public SaaS companies are happy to get to rule of 40, while we have been exceeding the rule of 70 for the last 12 months…Our continued investment in scaling, our engineering and go-to-market machines is yielding the best revenue growth we have had in three years even as we surpassed $1 billion in annualized revenue.”
Cybersecurity Stocks to Watch: CheckPoint Software (CHKP)
Of the stocks on this list, I may be most excited about CheckPoint. The company sports a market cap of “just” $17.8 billion, but despite its smaller size relative to its peers, the stock continues to trade really well.
Like Palo Alto Networks, the stock has suffered a recent decline, with shares down about 6% from the all-time high. However, it’s also one of the very few tech stocks that have made a recent all-time high as well, doing so on March 3.
Surprisingly, though, this company has very little growth vs. many of its peers. Specifically, analysts expect just about 6% revenue growth this year and 5% in 2023.
So why is this name doing so well?
Well, it’s valuation on an earnings basis is relatively reasonable. Shares trade at around 18.5 times this year’s earnings forecast. While estimates call for just 3% growth in 2022, they jump to 10% growth in 2023. Cash flows continue to increase and the company has around $1.7 billion in cash and equivalents on its balance sheet with little discernible debt.
Is it the sexiest pick? No. But right now, the stock is delivering and that’s what counts.
Similar to CheckPoint, NortonLifeLock weighs in a with a market cap just a hair above $16 billion. Unlike the rest of this list though, the stock actually pays a dividend with a yield of 1.8%.
Dividend aside, there are a lot of similarities between CheckPoint and NortonLifeLock. For instance, the latter also has just mild growth (although better growth than the former). Analysts expect sales to grow almost 10% this year, followed by roughly 7% growth in each of the next two years.
That said, earnings are even better. Estimates call for roughly 20% growth this year and 10% in 2023. That leaves NortonLifeLock stock trading at a paltry 14 times forward earnings despite pretty solid growth. The only knock here is the balance sheet, with almost $4 billion in total debt more than double the $1.78 billion in cash and equivalents.
Still, for that valuation and this type of growth, NortonLifeLock is worth another look.
Cybersecurity Stocks to Watch: Global X Cybersecurity ETF (BUG)
Can’t decide which of the cybersecurity stocks is best? How about putting them all together? In the Global X Cybersecurity ETF, each of the six stocks named above is a top-10 holding in this exchange-traded fund (ETF).
The other four names include Avast plc (which is not traded in the US), Tenable Holdings, Trend Micro (a Japanese firm) and Okta (NASDAQ:OKTA).
The 10 stocks in this ETF make up almost 60% of the fund, so it’s pretty decent exposure to these names. On the plus side, Checkpoint and Palo Alto Networks — the two best-performing stocks on this list — are the top two holdings in the BUG ETF.
As a result, BUG is down “just” 10% from the highs and just 1.7% this year. Its year-to-date (YTD) performance is better than both the S&P 500 and the Nasdaq, while both performances top the Nasdaq’s return over the same periods, respectively.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter qq@BretKenwell.