Internet Security Boosts Micro Trend

08/27/2015 9:43 am EST


The most infuriating aspect of the Internet is its lack of security. All kinds of nefarious activity can hijack your personal computer and the databases of companies you do business with, cautions Martin Hutchinson, editor of Pacific Wealth.

The recent hack of the federal government underscores just how vulnerable we all are to crashes on the information superhighway.

Our Internet security holding—Japan’s Trend Micro (TMICY)—is an industry leader and stands to benefit from its inexorable growth.

The Internet security business is becoming more complex, as the threats grow more sophisticated and the remedies to combat them evolve.

This means a soaring demand for the technologies and services that safeguard sensitive information stored electronically.

Trend Micro’s operations are worldwide, so it isn’t bound to Japan’s shaky economy. The company is also diversified by type of customer.

Although Trend Micro’s sales in Japan are divided equally between consumers and companies, 80% of sales outside the country are to businesses.

Trend Micro’s profits increased steadily over the last five years. Also, it has a rock-solid balance sheet, with no debt and $1.6 billion of cash and marketable securities.

The high percentage (one-third) of assets in cash and securities should be kept in mind when sizing up the company’s financials. So, although its P/E of 26.9 is high, its cash pile distorts this.

If you look only at the value of its business, the enterprise value/EBITDA (earnings before interest, taxes, depreciation and amortization) is a relatively modest 11.7 times.

Trend Micro’s products protect information on mobile devices, gateways, servers and the Cloud.

With its products, clients can protect their customers, data centers, and information threatened by targeted attacks.

The company also owns a great deal of intellectual property, with 67 patents approved in the last four quarters alone.

With a leading position in a critical tech sector, Trend Micro gives us a valuable exposure to the best of Japan’s burgeoning tech sector.

And it has a nice dividend, currently yielding 2.7%. That’s subject to the 10% Japanese withholding tax, which can be offset against US taxes, so it’s slightly more advantageous to hold Trend Micro in a taxable account.

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