Raytheon: A Stealth Cyber Play

10/06/2015 7:00 am EST

Focus: STOCKS

Cyber-security will remain a growth field for years to come. But to benefit, you don’t need to invest in small, risky cyber-security specialists, notes Michael Robinson in Money Morning.

Instead, you can profit from a defense tech leader that recently opened up a new line in federal cyber-security, a business that'll be growing at a hefty, steady pace between now and at least 2020.

I think investors should look at Waltham, Mass.-based Raytheon Co. (RTN), which is well known as one of the nation's top defense contractors.

But over the last few years, Raytheon has quietly beefed up its cyber division to protect government agencies and other large organizations. In that regard, Raytheon ranks as a stealth cyber play.

Raytheon made a huge leap forward in April when it bought control of Websense, Inc. for $1.7 billion, creating a new cyber-security unit focused on commercial clients such as banks and retailers.

The move instantly diversified the company's cyber operations beyond the federal realm.

Websense counts some 21,000 commercial clients, about half of whom are overseas, and it consistently ranks in the top 10 firms providing gateways to protect against Web intrusions and data loss protection.

This is part of Raytheon's long-term strategic plan. Company leaders decided back in 2007 to invest in cyber-security as a growth business and have made some 14 acquisitions in this area since then.

For instance, Raytheon acquired surveillance and cyber-security company Blackbird Technologies in 2014. Blackbird counts customers at the US Department of Defense and in the intelligence community.

Even better, Raytheon is a twofer investment. We get both its new cyber-security business and the company's full defense capabilities.

And those are wide-ranging. Raytheon ranks as a leader in missile defense, radar, surveillance, electronic warfare, and precision weapons. It also provides advanced sensors, avionics, data analytics, and drones.

The stock trades at less than 15 times forward earnings, a roughly 15% discount from the S&P 500 Index.

Yielding 2.8% dividend, Raytheon will help protect the value of your portfolio at the same time it's protecting our nation's cyber-security and, increasingly, our banks and retailers as well.

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Two Ways to Play Cyber-Security

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