- As cybersecurity attacks grow, these three cybersecurity stocks have excellent upside potential given the recent market turmoil.
- Palo Alto Networks (PANW): Plenty of tailwinds on the way.
- Check Point Software (CHKP): A high-quality stock with impressive results that looks promising for the road ahead.
- NortonLifeLock (NLOK): Outstanding long-term growth prospects.
Along with the broader market, the cybersecurity space is one that’s been battered of late. Most major players in this sector are well off their highs, with declines of more than 50% from last year’s peaks commonplace. Accordingly, this dip may be an attractive one for bulls on this sector.
That’s because the race for technological advancements and digitization to protect networks, programs and information systems from digital attacks is on. Cyberattacks are growing in prevalence and frequency. And with the Russian invasion of Ukraine, many investors may have reason to be concerned about Western budgetary spend in this regard.
Companies aren’t spending enough on cybersecurity. Recent reports suggest that the average company spends only around 0.3% of their total revenue on cybersecurity (or roughly 10% of their IT budgets). Indeed, in the context of rising cybersecurity attacks, this may not be enough.
Research firm Gartner (NYSE:IT) points out that approximately 45% of companies globally will have suffered attacks on software supply chains by 2025 — that implies a three-fold hike from last year. Cybersecurity companies provide what are essential services, that just aren’t being viewed as such right now.
Accordingly, here are three top cybersecurity stocks I like in this environment.
|PANW||Palo Alto Networks||$477.00|
|CHKP||Check Point Software||$122.13|
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) is a diversified cybersecurity company operating globally. Palo Alto focuses on firewall software and applications, providing subscription services to clients looking to secure their mobile devices and computers.
Notably, this week Palo Alto reported earnings. The company’s stock price shot higher on Friday, boosted by a top and bottom line beat, as well as yet another guidance raise. Indeed, Palo Alto has been an outperformer when it comes to earnings reports, consistently raising forward guidance to a greater degree than its peers.
With revenue growth of 29% and forward earnings per share to come in around $7.45 per share this year, PANW stock isn’t cheap. This implies a price-earnings (P/E) ratio over 60. However, on a forward-looking basis, there’s a lot to like about the growth prospects of this cybersecurity stock. Thus, investors taking a multi-year view of where Palo Alto is headed may like this stock at these levels.
Check Point Software (CHKP)
Check Point Software (NASDAQ:CHKP) is yet another company in the cybersecurity space I think is worth considering. This Israel-based company focuses on data security, management solutions, network security and endpoint security. Those looking at the cybersecurity space through the lens of both products and services often point to Check Point as a top pick among cybersecurity stocks.
That said, Check Point’s recent earnings numbers tell a rather different story. The company reported relatively flat earnings growth, and revenue numbers which didn’t impress the overall market. Accordingly, over the past month, this stock has declined more than 15%.
That said, from a valuation perspective, there’s a lot to like about how Check Point is positioned. Currently, this stock trades at less than 20-times earnings. Accordingly, for those bullish on overall sector-wide growth, this company’s forward-looking prospects appear juicy.
Analysts expect only 6.5% revenue growth next year, which is positive, but not necessarily great. That said, should the company beat earnings moving forward, I think there’s lots of upside with CHKP stock as a value pick.
NortonLifeLock (NASDAQ:NLOK) is an interesting company in that NLOK stock is among the few cybersecurity stocks paying a dividend. Not only that, but NortonLifeLock pays out a pretty juicy dividend yield of 2.1%. Thus, for those seeking both growth and income, this is an interesting option to consider.
Now, one of the reasons NortonLifeLock’s dividend yield is so high is that this stock is down more than 20% from highs seen earlier this year. And like Check Point, NLOK stock is one that trades in the value bucket. At only 17-times earnings, this is a company that really gives investors bang for their buck.
One of the reasons I’ve been watching NortonLifeLock is the company’s ongoing acquisition of Avast. This Avast acquisition, assuming it survives the U.K. Competition and Markets Authority’s (CMA) investigation, will provide significant user growth, with greater potential for improved offerings in the privacy and identity protection markets. I expect revenues to increase considerably as a result of this deal, rendering the company’s current valuation multiple attractive. Thus, for those looking for a cybersecurity stock with a real medium-term catalyst, NLOK stock is one to consider.
On the date of publication, Chris MacDonald 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.