Six Ways to Play Cyber Threats

05/31/2017 2:56 am EST


Tony Daltorio

Editor, Investors Alley Premium Digest

Protecting computers from cyber attacks is big business. We’re talking billions of dollars, and the growing need for cybersecurity makes these companies great purchases for growth over the next five years, explains Tony Daltorio, contributing editor to The Market Cap, published by Investors Alley.

Who knew that the ‘Oracle of Omaha’, Warren Buffett, would actually turn out to be an oracle? A few days before the launch of the latest cyber attack, the WannaCry ransomware, Buffett spoke at the annual Berkshire Hathaway (BRK.A) shareholder meeting.

During the get-together, Buffett said, “I don’t know that much about cyber, but I do think that’s the number one problem with mankind.”

Wall Street seems to have awoken (finally!) to the importance of this sector. At the moment, the cyber security market is worth $40 billion and is growing at a 7% annual rate. Not a market anyone should disregard.

If you decide to invest into individual cyber security stocks, tread very carefully. There are a few very good companies in the sector, but also many not-so-good ones. In fact, most of these stocks have underperformed the Nasdaq Composite.

A nice conservative way to play cyber security is through Cisco Systems (CSCO), which now generates more than $2 billion in revenue annually from its security business.

One well-known name that has outperformed the Nasdaq is Symantec (SYMC), with a rise of 82% over the past year. The company reported it blocked nearly 22 million WannaCry infection attempts across 300,000 endpoints.

Another good choice is Israeli firm Check Point Software Technologies (CHKP), whose stock is up 34% in the past 52 weeks. It said it stopped a variant of WannaCry by activating a “kill switch” in the software.

Two other companies were pointed out as prime beneficiaries of the recent WannaCry by Goldman Sachs analysts -– Proofpoint (PFPT) and Mimecast (MIME) — because of their best-in-class email security.

These stocks have climbed 58% and 227% respectively in the last year. Bear in mind though that these two stocks are very richly valued.

Meanwhile, the broadest way to play the cyber security is through the PureFunds ISE Cyber Security ETF (HACK). Its portfolio consists of 39 stocks, of which 34 have advanced since the WannaCry attack. I like the fact that it is a global fund with about 73% U.S. stocks and the remainder spread across the globe.

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