“The #1 Tech Opportunity of the Decade”

On February 8th, Luke Lango is making his biggest call of 2023. He’s recommending technology (that you’ve likely never heard of) that could help 122 million people… And mint up to $3 trillion in wealth.

Wed, February 8 at 8:00PM ET
 
 
 
 

7 Cybersecurity Stocks to Buy and Hold for the Long Haul

  • Cybersecurity is essential to businesses of all sizes, and the spending on it is only expected to grow for the next decade.
  • Palo Alto Networks (PANW) – PANW’s leadership in channel sales is another reason that Palo Alto continues to be the standard in cybersecurity.
  • Microsoft (MSFT) – With a $1.8 trillion market cap and hefty free cash flow, Microsoft offers conservative investors quality exposure to this emerging sector.
  • Palantir (PLTR) – Palantir is a polarizing stock, but it may be the steal of the century.
  • Zscaler (ZS) – The company continues to retain customers even as it adds others.
  • CrowdStrike Holdings (CRWD) – Increasing revenue will have to be enough to keep investors interested for now.
  • Fortinet (FTNT) – The company specializes in protecting a niche that is prone to cybersecurity attacks.
  • Global X Cybersecurity ETF (BUG) – The ETF gives investors a lower risk way to gain exposure to the entire sector, including several of the names on this list.
cybersecurity stocks to buy and hold - 7 Cybersecurity Stocks to Buy and Hold for the Long Haul

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This is the third time I’m advising investors about cybersecurity stocks to buy and hold. We’ll get to my selections in a second.

But first, I want you to think about your investing goals. If you’re an investor who’s measuring your time horizon in years, perhaps even decades, now is a great time to look at cybersecurity stocks.

I know, I know. You’d have to be crazy to invest in “tech stocks” right now. The tech-heavy Nasdaq index is down 32% in 2022. And many specific names, including those in the cybersecurity sector, have fallen even more.

So I understand if you want to steer clear of cybersecurity stocks. But you should take a moment to understand the opportunity that they provide.

For example, in 2021, the U.S. government spent $18.78 billion on cybersecurity.

And, according to the firm Cybersecurity Ventures, cumulative global spending on cybersecurity products and services will climb to $1.75 trillion between 2021 and 2025.

That means if you have a tolerance for risk and a long time horizon, now would be a time to consider buying cybersecurity stocks. Here are seven cybersecurity stocks to buy and hold for safe gains in the future.

PANW Palo Alto $147.30
MSFT Microsoft $245
ZS Zscaler $113.30
CRWD Crowdstrike $107.80
PLTR Palantir $6.45
FTNT Fortinet $49.75
BUG Global X Security ETF $21.45

Palo Alto Networks (PANW)

Palo Alto Networks (PANW) logo on corporate building

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For the third time, Palo Alto Networks (NYSE:PANW) leads my list of cybersecurity stocks to buy and hold. In its most recent earnings report, the company delivered its second straight quarter of year-over-year earnings growth for the first time since the pandemic.

Still, investors can look at the stock and say it’s overvalued with a forward price–earnings (P/E) ratio of over 36 times. But the company’s projected growth also has to be considered. Analysts, on average, expect the company to grow its earnings per share  at an average, annual rate of approximately 19% over the next five years.

And PANW may just meet those estimates. The company was recently cited as the top global cyber security vendor, largely due to other firms that sell its products. The research firm Canalys reports that, overall, Palo Alto’s sales grew 24.9% year-over-year and it increased its market share to 8.4%. Another reason for PANW’s success is the growth of the company’s subscription base which makes up over 80% of its billings.

Microsoft (MSFT)

Image of corporate building with Microsoft logo above the entrance.

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If you want exposure to the cybersecurity sector and you’re okay with not investing in pure-play cybersecurity stocks, Microsoft (NASDAQ:MSFT) is a good choice. Through its Azure cloud computing platform, Microsoft “provides a comprehensive, zero trust approach to security, identity, and cybersecurity.”

In volatile times, investing in a company with a $1.8 trillion market cap gives investors both growth and stability. MSFT generated over $65 billion of free cash flow (FCF) in 2021. And that’s after spending over $500 million on strategic acquisitions.

Microsoft checks in with a price-earnings (P/E) ratio of just over 26. That’s very reasonable for a technology stock. And investors get the benefit of a dividend, while its yield of 1.11% is on par with that of  other technology stocks. Plus, its dividend has increased for 19 consecutive years, making it a solid choice for income-oriented investors.

Palantir (PLTR)

A close-up shot of a hand on a screen with the Palantir (PLTR) logo.

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The first two stocks on this list of cybersecurity stocks to buy and hold are appropriate for any investor. The same can’t be said of Palantir (NYSE:PLTR). The company is polarizing and so is its stock. It went public via a direct listing in 2021. But almost exclusively, PLTR stock  has gone down since that time.

Still, this company’s revenue is stable because of its contracts with the U.S. government in general and the Department of Defense and the CIA in particular. The problem for many investors is that Palantir’s revenue from Washington is not a new story. But as its last two quarters have shown, the company is not consistently profitable, and investors are losing patience with it.

However, PLTR is expected to generate strong revenue and earnings over the next five years. And several analysts continue to be enthusiastic about Palantir.

The bottom line is that Palantir is a polarizing stock. That being said, trading for below $7 a share, PLTR could pay off for long-term investors.

Zscaler Inc. (ZS)

Zscaler (ZS) logo on a corporate building

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Zscaler (NASDAQ:ZS) makes this list because of the way it’s addressing the threat posed by remote workers. The company is the world’s largest security cloud platform. And its Zero Trust Exchange allows all users of networks to safely browse the internet and access applications no matter what device they’re on or where they are.

As is the case with many subscription-based businesses, customer retention is the name of the game. In its last earnings report, unveiled on December 1, 2022, Zscaler reported a 90% retention rate to go along with 80% gross margins and a free cash flow margin of 27%.

In that same earnings report, Zscaler’s top line came in at $356 million. That was an increase of 54% from the same quarter in the previous year and a 12% increase from the prior quarter. Its earnings per share came in at 29 cents, which bested analysts average estimate of 26 cents.

Much of that growth came from the company’s expanding business with the federal government.  Zscaler’s growing federal business is one reason for my optimism about its ability to meet analysts’ lofty projections for it in the next five years.

CrowdStrike Holdings (CRWD)

A sign with the Crowdstrike (CRWD) company logo

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I said this was a list of cybersecurity stocks to buy and hold. But I’ll admit that  CrowdStrike (NASDAQ:CRWD) is putting that theory to the test. This is the third time that I’ve put CRWD strike on this list, and the stock has done nothing but move lower since I started recommending it.

The same can’t be said, however, about its revenue. The company continues to deliver quarter after quarter of rising revenue. But in its most recent quarter,  the company, which has the largest market cap of any cybersecurity company, lowered its forward guidance. And the bigger issue with CRWD is that it is not yet profitable at a time when investors have growing concerns about an “earnings recession” in 2023.

But there is reason to be optimistic about its long-term outlook. The company has the cash on hand to meet its financial obligations. And analysts, on average, give the stock a price target of $195 which is about 75% above its current price.

Fortinet (FTNT)

The Fortinet logo on a wall

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Fortinet (NASDAQ:FTNT) makes my list of cybersecurity stocks to buy and hold for many reasons. First, the company is the second largest pure-play cybersecurity company after Palo Alto Networks. Second it checks off many of the boxes that should be important to investors in any market.

For example, the company’s revenue continues to grow. Not only that, but it’s profitable as well.

And a reason I keep advocating for investors to consider buying FTNT stock is its focus on the data center market. Data centers are among the most appealing targets for cyberattacks due to their importance to businesses.

So companies are going to pay big money to protect their data centers, and Fortinet delivers that protection with its Fortinet Security Fabric. The company’s solution utilizes Cybersecurity Mesh Architecture (CSMA) – an architectural approach “that promotes interoperability between distinct security products to achieve a more consolidated security posture.”

With all those reasons to own the stock, investors are not impressed, as FTNT stock is down 28% in the last 12 months. However, the company is expected to continue to grow its revenue and earnings at a double-digit-percentage annual pace in the next five years.

Global X Cybersecurity ETF (BUG)

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The Global X Cybersecurity ETF (NASDAQ:BUG) can be an ideal way for many investors to invest in the cybersecurity sector. That’s because many cybersecurity companies provide the same or similar services, and that can make it difficult for someone without intimate knowledge of the sector to differentiate among the companies.

With the Global X Cybersecurity ETF, investors get exposure to 27 cybersecurity stocks, making BUG a heavily concentrated fund. In fact, as of October, the fund’s top five holdings made up 39% of its overall portfolio. Additionally, 57% of the company’s holdings are  software companies, which have advantages over companies that provide hardware solutions.

And it has an expense ratio of just 0.50%.

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. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.


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