You may think the time is right to move into cybersecurity stocks, if you’re reading this IBD investing primer.
Amid the rapid global spread of the coronavirus called Covid-19, many companies instructed employees to work from home. Also, many businesses are setting up virtual private networks, or VPNs. Some are buying laptops with pre-installed security software.
The IBD Computer-Software Security group has moved up to No. 14 out of 197 industry groups tracked.
Fortinet owns the highest IBD ranking among cybersecurity stocks amid the coronavirus lockdown. Sunnyvale, Calif.-based Fortinet’s first-quarter earnings topped views as VPN deployments increased demand for its network firewall products. Fortinet ranks No. 45 in the IBD 50 roster of fast-growing companies.
In addition, Fortinet holds a Relative Strength Rating of 96 out of a possible 99, according to IBD Stock Checkup. Other cybersecurity stocks with RS Ratings above 90 include Okta (OKTA), CrowdStrike Holding (CRWD), Qualys (QLYS), Zscaler (ZS) and Ping Identity Holding (PING).
“Unsurprisingly, obvious work-from-home enablers and cloud models — Zscaler, Okta, CrowdStrike, Qualys — have proven most resilient,” UBS analyst Fatami Boolani said in a report to clients.
As remote workers access company data via the internet, information-technology departments are making computer security a priority. However, cybersecurity stocks have been hard hit amid the coronavirus-driven market correction, along with other technology companies.
“Specific to cybersecurity, we believe corporations are facing challenges in terms of VPN capacity, protecting workers adequately with next-generation network and endpoint security offerings, intensifying email and phishing campaigns, identity access management, and control over software applications,” William Blair analyst Jonathan Ho said in a recent report to clients.
He added: “We believe companies that sell these types of solutions are likely to have natural offsets that could mitigate the impact of slower contracting activity.”
Coronavirus Emergency Shakes Up Cybersecurity Stocks
Zscaler, Qualys and Ping Identity were featured recently as the IBD Stock of the Day.
Further, Zscaler sells cloud-based secure web gateways, a replacement for VPNs, as more employees work from home. Qualys sells security vulnerability management services.
In a note to clients, Cowen analyst Nick Yako cautioned that industries hard hit by the coronavirus pandemic — airlines, hotels, retail and restaurants — will spend less on security software n 2020.
Meanwhile, Palo Alto Networks (PANW) stock crumbled on a fiscal second quarter revenue miss and weak guidance. The collapse of Palo Alto stock raised further questions over slowing growth in the firewall network market.
“When the business world returns to normal, we’ll likely see a return to enterprises investing in perimeter-less security architectures, particularly given a workforce that will be structurally more distributed and as adoption of cloud infrastructure applications grow,” said Morgan Stanley analyst Melissa Franchi in a recent report.
Cybersecurity Stocks: Data Breaches Spur Corporate Spending
While cybersecurity stocks often get a boost from well-publicized cyberattacks, the impact can be short-lived.
Corporate America has hiked tech spending on security aiming to protect intellectual property as well as consumer privacy. Hackers continue to steal credit card data and intellectual property.
And extortion is on the rise. Hackers are increasingly using ransomware. They demand payments to let companies regain access to their own information.
Food-delivery service DoorDash said in September that a security breach exposed the personal data of about 4.9 million customers, merchants and delivery workers.
One overhang on cybersecurity stocks has been concern over corporate spending if the U.S. economy slows in 2020. In addition, some security vendors are shifting to software-based subscription business models from selling hardware appliances.
Meanwhile, analysts say Netskope and Menlo Security are among cloud security startups that could launch initial public offerings. Analysts say a new wave of startups seems to be taking share from industry incumbents. They include Illumio, SentinelOne, Cybereason, Exabeam and iBoss.
Cloud Computing One Key Trend For Cybersecurity Stocks
Spending on security technologies has evolved as companies shift business workloads to cloud computing service providers, such as Amazon Web Services, part of Amazon.com (AMZN.) Amazon, in fact, looms as a potential rival as it builds more security tools into its cloud computing services.
In addition, Microsoft (MSFT) is integrating more security tools into its cloud-based Office 365 software.
“As workloads and compute instances grow, the security paradigm shifts from a traditional data center architecture to cloud-delivered services,” said a recent Bank of America note. “We believe the shift to cloud and software-as-a-service security continues and potentially accelerates in 2020.”
Fortinet competes with Palo Alto Networks and others in the firewall security market. Firewalls reside between private networks and the internet. They block unauthorized traffic and check web applications for malware.
As large companies shift to off-premise cloud computing services, one view is that firewall technology will play a lesser role. Fortinet has targeted software-defined wide area networks, or SD-WANs, an emerging computer networking technology.
Aiming to catch-up in SD-WAN technology, Palo Alto Networks recently acquired startup CloudGenix for $420 million in cash.
Palo Alto Networks aims to build a broad cloud-based security platform, partly through acquisitions.
Coronavirus Emergency Makes Cybersecurity A Priority
Cybersecurity stocks span a wide-range of products and services. It behooves an investor to know which cybersecurity stocks address ransomware, phishing or other kinds of cyberattacks.
Hackers often aim to compromise networks by targeting employees or management who have administrative access to computer systems. CyberArk Software (CYBR) manages privileged accounts. In addition, Okta provides identity management services.
To slow down hackers, more companies are focusing on internal security threats though a strategy known as Zero Trust.
Traditional security measures aim to keep the bad guys out of corporate networks. Network firewalls focus on intruders from the public internet.
Zero Trust cybersecurity models focus on internal threats, such as hackers stealing someone’s security credentials. Security firms verify the identity of network users and check whether their devices are free of malware before granting them access to applications.
Targeting Zero Trust security, Cisco Systems (CSCO) in 2018 acquired Duo Security for $2.35 billion.
Artificial Intelligence Changing Cybersecurity Market
Also, many fast-growing cybersecurity firms are in the endpoint market: detecting malware on laptops, mobile phones and other devices that access corporate networks. These fast-growing cybersecurity firms focus on providing secure connections between a company’s internal business apps and authorized users that work remotely.
In addition, CrowdStrike is…
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