Cybersecurity is one of the fastest-growing segments of IT spending. Chief Information Officers consistently rank cybersecurity as their top spending priority, observes Carl Delfeld, international investing expert and editor of Cabot Global Stocks Explorer.
Damages from cybercrime could cost the world $6 trillion annually in 2021, prompting individuals, companies, and governments to spend a bundle to protect proprietary data.
Cybersecurity will be a powerful theme in 2021 that will be further fueled by the growth of new technologies that offer connectivity to data, such as machine learning, cloud computing, and the internet of things (IoT).
Now, using my trademark “shotgun and rifle” strategy of combining an ETF with a specific stock pick, let’s take a look at how you can profit from this cybersecurity theme.
An aggressive cybersecurity play for 2021 is Cloudflare, Inc. (NET). This company went public through an IPO last year and got its start offering internet security and website performance services.
The decade-old company is growing fast and appears to be gaining market share. NET has high gross margins and some analysts expect its revenue to double by 2022.
This off-the radar company and potential takeover target engages provides cloud-based services to secure websites. It offers various products for performance and reliability, video streaming and delivery, advanced security, insights, Cloudflare for developers, domain registration and Cloudflare marketplace.
With many companies requiring employees to work from home, that has put a strain on security. Cloudflare has helped companies deal with hardships imposed by the pandemic, even making its product to support remote work free for small businesses through this past August.
NET stock is growing quite fast: it’s up a whopping 387% in 2020! It may be due for a pullback, though it did just weather a fairly sharp retreat (-15%) in the second half of October.
A broader, more conservative cyber play is the Global X Cybersecurity ETF (BUG), a basket of cybersecurity stocks of companies developing and managing security protocols to prevent intrusion and attacks on systems, networks, applications, computers and mobile devices.
This ETF has 29 holdings and the top 10 stocks represent roughly 60% of the total market value of the basket. Seventy-four percent of the companies are incorporated in America, followed by 13% in Israel and 8% in Japan. BUG was recent up 76% for the past year.
Put these two cybersecurity plays in your portfolio to profit from this enduring megatrend — in 2021 and beyond.
