Cybersecurity stocks were red hot at the onset of the pandemic. However, even this sector was not immune from the tech sell-off that began in November and accelerated at the start of 2022.
Nevertheless, it looks like a bottom has formed. President Joe Biden is warning that Russia may be preparing cyber-attacks in the United States as retaliation for the harsh economic sanctions as a response to its invasion of Ukraine. And that is providing a fresh catalyst for cybersecurity stocks.
In late 2020, Cybersecurity Ventures predicted companies would endure $6 trillion of damage from cybercrime in 2021. The company also expected that number to grow by 15% per year to reach $10.5 trillion by 2025. And that was before the Russian invasion of Ukraine.
Keep in mind that many of these companies reported earnings before the Russian invasion, so many of the price targets may not be pricing in the current conflict. That’s why, while many of these stocks look to be expensive, they are likely to have more upside.
Here are seven cybersecurity stocks for investors to consider as we head into the second quarter.
- Palo Alto Networks (NYSE:PANW)
- CrowdStrike Holdings (NASDAQ:CRWD)
- Cloudflare (NYSE:NET)
- Microsoft (NASDAQ:MSFT)
- Zscaler (NASDAQ:ZS)
- Okta (NASDAQ:OKTA)
- Tenable Holdings (NASDAQ:TENB)
Cybersecurity Stocks to Buy: Palo Alto Networks (PANW)
Topping my list of cybersecurity stocks to buy is Palo Alto Networks. PANW stock is up 32% since the Russian invasion. This has pushed the stock past its previous 52-week high set in late December. Many analysts boosted their price targets for Palo Alto Networks after the earnings report. Still, it’s likely that the company’s growth is not completely priced in. Investors should pay attention for institutional investors to begin jumping back into the stock.
One reason for that may be the company’s solid fundamentals, which Morgan Stanley (NYSE:MS) cited in making Palo Alto its top cybersecurity pick. Another reason for investors to consider PANW stock is the company’s ability to attract an international roster of enterprise customers.
Palo Alto’s App-ID patented security platform identifies network traffic by application, user and content. This provides customers with in-depth visibility that allows them greater monitoring of potential risks and threats for all traffic and applications. And Palo Alto offers stand-alone platforms that provide end-to-end security without the need for companies to use another company.
CrowdStrike Holdings (CRWD)
I recently offered an opinion that CRWD stock was a cautious buy as it continues to stand out in a crowded sector. Revenue continues to grow at a double-digit rate. And the company reported record free cash flow of $127 million.
One of the catalysts for CrowdStrike is the company’s business model. As a cloud-first business, CrowdStrike helps companies move their existing security protocols into the cloud era. It seems to be working as the company counts 63 of the Fortune 100 companies as clients. And it also does business with 14 of the top 20 banks.
CRWD stock is up 22% in the last month. However, since reporting earnings in early March, the consensus price target has fallen sharply from $286.85 before earnings to $264.22 after the report. It still leaves investors with a 19% upside. And although the company has seen many analysts lower their price targets, even those analysts have a price target for CrowdStrike that is above its current level.
Cybersecurity Stocks to Buy: Cloudflare (NET)
One of the most common cybersecurity attacks is a distributed denial-of-service (DDoS) attack. This type of attack attempts to overwhelm a specific server, network or service by flooding it with traffic.
DDoS attacks are the primary focus of Cloudflare. The company hosts customers on its content delivery networks (CDNs) which are housed in one of 250 cities worldwide. The benefit is that it keeps a company’s data center as close as possible which speeds the time it takes for the website to load information.
NET stock is up 16% in the last 30 days. That’s important to note because the stock was punished when the company announced that it was going to continue providing service in Russia. The company’s rationale may not have soothed investors. But it doesn’t seem to be detracting analysts who give the stock an approximate 25% upside.
Cloudflare is not yet profitable and it will be several years before it is. That means if you’re looking to buy NET stock you’ll want to look for continued revenue growth.
Microsoft may not be the first name you think of when you think about cybersecurity, but the company is growing the cybersecurity part of its business. One of the catalysts for this growth is the company’s ability to integrate its proprietary security tools into its Office 365 software.
Microsoft has also made significant investments in that side of the business. In the last nine months, the company paid approximately $500 million to buy RiskIQ and it also purchased CloudKnow Security.
MSFT stock is down 8% for the year. But much of that is simply because it’s a tech stock at a time when tech stocks are under significant pressure. Nevertheless, the stock has a price target that suggests it will surpass its previous 52-week high. And with the addition of a dividend that the company has increased for the last 20 years, Microsoft is a compelling buy for more risk-averse investors.
Cybersecurity Stocks to Buy: Zscaler Inc. (ZS)
Zscaler is recognized as the leader in cloud security with a customer base that includes 20% of the Fortune 500. The stock has been lagging other cybersecurity stocks since the beginning of the year. However, a recent announcement may provide ZS stock with a catalyst. The company just launched three industry-first Zero Trust Network Access (ZTNA) innovations. These innovations will allow its customers to replace legacy security solutions such as firewalls and VPNs.
That may sound like a lot of techno-jargon. So I’ll let the a Wall Street Journal article explain. In a recent article, James Rundle of the WSJ stated the current trend toward remote and hybrid work is “a hacker’s dream: a constantly changing mix of office and remote workers, devices that move in and out of the company networks, and security staffs stretched thin.”
This will make effective protocols, such as those provided by Zscaler a critical part of the digital infrastructure as we move forward.
Okta makes this list of cybersecurity stocks to buy because it occupies a distinct niche within the sector. Specifically, the company helps businesses address identify authentication with a “zero trust” approach. This is becoming increasingly important as businesses have to accommodate an increasingly decentralized workforce. Okta’s software-as-a-service (SaaS) solutions range from two-factor use authentication to biometrics.
Ironically, OKTA stock is dropping the day I write this as investors are concerned about, wait for it, a cyber-attack that is affecting the company’s customers. With the situation ongoing, I’m not going to predict how it will turn out. However, the attack is known to have taken place in January so, if Okta can prove that it was able to contain, and/or minimize the damage, it should be a catalyst for the stock, which has a $239.54 price target with a 61% upside.
A concern about Okta would be the company’s lack of profitability. Still, OKTA stock enjoys high institutional ownership, although sellers have outnumbered buyers over the last 12 months.
Cybersecurity Stocks to Buy: Tenable Holdings (TENB)
I’ll conclude this list of cybersecurity stocks just as I did in January with Tenable Holdings. Tenable is a holding company providing cybersecurity solutions to enterprise customers in industries that include automotive, energy, finance, healthcare, oil and gas, and government. The company’s Nessus product serves 30,000 organizations offering protection against over 68,000 common vulnerabilities and exposures.
If the Biden administration is correct and a cybersecurity attack on American infrastructure is probable, then it’s than likely one or more of these sectors will be targeted. That makes it likely that Tenable Holdings will play a significant role in helping to divert such attacks.
Tenable beat expectations for earnings and revenue in January. And the company reported unlevered free cash flow of $95.2 million. TENB stock continues to trade in a tight range. However, it’s up about 10% in the past month. And if it can successfully move past a line of resistance, then investors may have more confidence in the price target of $65.86 given by analysts.
On the date of publication, Chris Markoch 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.