Our theme of Cyber Security Stocks remains down by about 1% year-to-date, significantly underperforming the S&P 500 which has gained about 13% over the same period. However, the theme has picked up a bit since our last update in mid-May, when it was down by 6%.The underperformance versus the broader indices is likely due to the fact that most of the stocks in the theme are high-growth, high-multiple names that have been out of favor in the current market, as investors rotate into value and cyclical stocks to play the post-Covid boom in the U.S. economy. However, there’s good reason for investors with a long-term view to increase their exposure to cybersecurity stocks. Companies and governments are getting more serious about protecting their networks and infrastructure, following multiple high-profile cybersecurity incidents in recent months, including the ransomware attack on the Colonial Pipeline, the SolarWinds SWI hack, and the recent cyber attack on JBS – the world’s largest meat supplier. The increasing shift from on-premise to cloud-based information systems should also make companies prioritize security. Moreover, IT spending by corporates, in general, is likely to pick up from this year, after they scaled back on spending in 2020 due to Covid-19. This should bode well for companies that provide software, hardware, and services that help protect computer systems and networks.
Within our theme, Fortinet FTNT a company that provides cybersecurity-related hardware and software, has been the strongest performer, rising by about 49% year-to-date on account of stronger than expected quarterly results and its pivot to the cloud. On the other side, the stock price for Qualys QLYS a company that provides cloud security, compliance, and related services, remains down by about 18% this year, as its guidance for this fiscal year was weaker than expected.
Our theme of Cyber Security Stocks has declined by about -6% year-to-date, significantly underperforming the S&P 500 which has gained about 11% over the same period. However, the sector is likely to come back into focus for a couple of reasons. Firstly, there was a major cyber attack on the computer systems of the Colonial Pipeline forcing a shutdown of a pipeline that controls roughly half the gasoline, jet fuel, and diesel flowing along the U.S. East Coast. This marks the second major attack on core U.S. infrastructure in six months, coming on the heels of the Solar Winds hack which was reported last December. Secondly, last week, President Joe Biden signed an executive order aimed at bolstering the federal government’s cybersecurity defenses, with a host of plans to implement stronger cybersecurity standards. The recent events are likely to cause companies and the U.S. government re-assess threats and potentially increase cybersecurity-related budgets. This should bode well for companies that provide software, hardware, and services that help protect computer systems and networks.
Within our theme, Fortinet, a company that provides cybersecurity-related hardware and software, has been the strongest performer, rising by about 37% year-to-date driven by stronger than expected earnings in recent quarters. On the other side, the stock price for Qualys a company that provides cloud security, compliance, and related services, remains down by about 18% this year, as its outlook for this fiscal year was lighter than analysts expected.
[4/14/2021] How’s Our Cybersecurity Theme Faring?
Our indicative portfolio of Cyber Security Stocks has declined by about -1% year-to-date, underperforming the S&P 500 which has gained about 10% over the same period. However, the theme remains up by over 130% since the end of 2019, significantly outperforming the broader markets. The recent sell-off comes as investors book profits on remote working and SaaS stocks that rallied big through the pandemic. However, this could present a good opportunity for investors to enter the cybersecurity space. Global IT spending is expected to pick up this year after a muted 2020, rising by about 8.4% to $4.1 trillion per Gartner IT . Cybersecurity is likely to be a major focus area for most companies given the increasing shift to distributed workplaces and cloud-based applications and some high-profile security breaches in recent months. Within our theme, Fortinet, a company that provides cybersecurity-related hardware and software, has been the strongest performer, rising by about 34% year-to-date driven by stronger than expected earnings. On the other side, Mimecast Limited, a company that develops cloud security and risk management services for email and corporate data, was the weakest performer declining -28% so far this year, as some of its products were impacted by a security breach in January.
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[3/11/2021] Time To Buy Cybersecurity Stocks?
Our indicative portfolio of Cyber Security Stocks has declined by about 8% year-to-date, driven by the broader sell-off in technology and high growth stocks. The theme has also underperformed the Nasdaq-100, which is down by about 4% over the same period. However, we think this could be a good time to enter these stocks. Governments and corporations are likely to prioritize digital security spending following some recent high-profile cyber attacks. In December, there was a sizable data breach on U.S. Federal government computer systems, tied to network management software vendor SolarWinds. More recently, Verkada, a company that provides cloud-based security camera services to a host of institutions and companies including Tesla TSLA , was hacked. Within our theme, Fortinet, a company that provides cybersecurity-related hardware and software, has been the strongest performer, rising by about 21% year-to-date. On the other side, Mimecast Limited, a company that develops cloud security and risk management services for email and corporate data, was the weakest performer declining 25% so far this year.
[2/22/2021] Cybersecurity Stocks To Watch After SolarWinds Attack
Our indicative theme of Cybersecurity Stocks has returned over 150% since the end of 2019, compared to gains of about 21% on the S&P 500 over the same period. The theme is up by about 5% year-to-date. Cybersecurity companies typically provide software, hardware, and services that help protect computer systems and networks from data theft and potential disruption of services. The sector saw renewed interest late last year, following news of a large cyber-attack on IT infrastructure and network management software vendor SolarWinds, causing increasing concerns that software tools used daily by organizations and governments could be vulnerable. More broadly, following Covid-19, economic activity is increasingly moving online with businesses also becoming more distributed on account of the work from home trend. This should cause companies to prioritize their cybersecurity spending. Within our theme, Zscaler ZS and CrowdStrike CRWD have been the strongest performers, with their stock prices rising by almost 5x each since the end of 2019. On the other hand, Qualys has underperformed, declining by about 16% over the same period.
See our Cybersecurity Stocks theme for a complete list of the companies in our theme and a look at their recent performance.
[5/22/2020] Cybersecurity Stocks
Cybersecurity stocks have rallied sharply this year, with our indicative theme of six cybersecurity stocks that include Palo Alto Networks PANW (NYSE: PANW), Zscaler (NASDAQ NDAQ : ZS), and others up by about 28% year-to-date, on an equally weighted basis. While cybersecurity is a relatively diverse and complex sector, we believe there could be two broad trends driving the surge. Firstly, with the spread of the Coronavirus pandemic, more people have been working from home, and this has required companies to better secure corporate IT infrastructure, driving up demand for cybersecurity tools. Secondly, most of these companies offer their services on a subscription basis, with recurring revenue streams that could make them a stable bet during times of uncertainty. It’s also very likely that the crisis will cause a structural shift in the way businesses operate, benefiting these stocks well past the pandemic. Our theme of Cyber Security Stocks outlines some of the key names in the cybersecurity space and how they have performed in recent years. A part of the analysis is summarized below.
Zscaler ($10 billion market cap, $303 million FY’19 revenue), offers two tools, namely Zscaler Private Access which provides secure access to internally managed applications, that are hosted internally in data centers or in private or public clouds, and Zscaler Internet Access, which enables users to connect to externally managed applications such as Microsoft’s MSFT Office 365 and Salesforce. The stock has surged by 60% this year, as an increasingly distributed workforce drives demand for the company’s secure access solutions.
Palo Alto Networks ($23 billion market cap, $2.9 billion revenue) is a cybersecurity company best known for its firewalls, which are network security devices that scan for malicious traffic. The company has been increasingly focusing on cloud-based software-as-a-service (SaaS) security tools. While the stock is down slightly year-to-date, partly due to slowing revenue growth, the company could be a good long-term bet as businesses increasingly move online.
CrowdStrike ($17 billion, $481 million revenue) offers a cloud-delivered endpoint protection platform, which relies on lightweight software running on the customer’s servers or laptops. These applications, in turn, send data to a cloud-based security system that analyses threats. The stock is up by over 60% year-to-date, as the coronavirus pandemic has expanded the company’s addressable market meaningfully.
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