Hacking Epidemic Spurs Security Software Stocks

The hacking epidemic has jittery consumers checking statements from banks and credit cards. It has turned corporate information technology managers’ hair gray.

One of the few places where it has positive fallout in the stock market today is in security software stocks.

IBD’s Computer Software-Security industry group now ranks No. 8 out of 197. That’s down from No. 1 eight weeks ago, but up from No. 87 six months ago.

“Companies can no longer say, ‘How did we know we might get hacked? It’s never happened,'” Chicago attorney Andrew Stoltmann said. “Now companies are on notice that legal liability exists. And they’re looking for ways to protect themselves.”

Mutual funds are finding lots of stock investment ideas in the group. For example, 593 mutual funds held stakes in Palo Alto Networks (NYSE:PANW) as of Dec. 31. That was up from 356 funds as of March 31.

Members of the stock group have been on an uptrend. Versign (NASDAQ:VRSN) is up 15% since Jan. 28. CyberArk Software (NASDAQ:CYBR) is up 79% since Jan. 29. Others have been rising for months, such as Palo Alto and Proofpoint (NASDAQ:PFPT).

Still, many strong stocks in the group remain short of highs they set last March.

“There was a crescendo of momentum that took many stocks up,” said David Rudow, senior equity analyst for Thrivent Financial, whose mutual funds hold Fortinet (NASDAQ:FTNT), Imperva (NYSE:IMPV) and Proofpoint. “But valuations got too pricey.”

But heightened concerns about cybersecurity have boosted revenues for many names, he adds. Revenue has risen three straight quarters for Israel’s CyberArk Software.

Burglar Alarm

The firm’s software aims to verify that system users have access permission. The software can also take defensive steps against intruders, Rudow says.

The stock, which has the highest-possible 99 Composite Rating from IBD, has been forming an irregular double-bottom basing pattern. On Wednesday it broke through its 43.59 buy point.

Sales have climbed 12 quarters in a row for Barracuda Networks (NYSE:CUDA).

That’s largely because some of its key products aim to safeguard email, which hackers increasingly attack to gain access to corporate systems, says Gary Miliefsky, chief executive of SnoopWall, a mobile cybersecurity firm. Hackers send emails to unsuspecting workers, hoping they open them, exposing their employer’s systems to Trojan horse viruses.

Much of the increase in industry revenue stems from customers that are adding layers of security to protect themselves. “The day when all you needed was a firewall are long gone,” Rudow said.

Related Fields

Business for firms in related segments is also up, he adds.

Tableau Software (NYSE:DATA), in the Computer Software-Database group, makes tools that let managers visualize big data. The security aspect is that the underlying data — which many hackers want to access — can be kept elsewhere, stored in a more secure location, Rudow says.

Tableau, which has a 99 Comp Rating, saw 2014 sales hit $ 413 million, up from 2013’s $ 232 million.

Splunk (NASDAQ:SPLK), also in the database group, has an 81 Comp Rating. The security application of its software is in analyzing where apparent hacking attempts into a user’s system are coming from. “But it’s still an expensive stock,” Rudow said.

The hacking epidemic has jittery consumers checking statements from banks and credit cards. It has turned corporate information technology managers’ hair gray.

One of the few places where it has positive fallout in the stock market today is in security software stocks.

IBD’s Computer Software-Security industry group now ranks No. 8 out of 197. That’s down from No. 1 eight weeks ago, but up from No. 87 six months ago.

“Companies can no longer say, ‘How did we know we might get hacked? It’s never happened,'” Chicago attorney Andrew Stoltmann said. “Now companies are on notice that legal liability exists. And they’re looking for ways to protect themselves.”

Mutual funds are finding lots of stock investment ideas in the group. For example, 593 mutual funds held stakes in Palo Alto Networks (NYSE:PANW) as of Dec. 31. That was up from 356 funds as of March 31.

Members of the stock group have been on an uptrend. Versign (NASDAQ:VRSN) is up 15% since Jan. 28. CyberArk Software (NASDAQ:CYBR) is up 79% since Jan. 29. Others have been rising for months, such as Palo Alto and Proofpoint (NASDAQ:PFPT).

Still, many strong stocks in the group remain short of highs they set last March.

“There was a crescendo of momentum that took many stocks up,” said David Rudow, senior equity analyst for Thrivent Financial, whose mutual funds hold Fortinet (NASDAQ:FTNT), Imperva (NYSE:IMPV) and Proofpoint. “But valuations got too pricey.”

But heightened concerns about cybersecurity have boosted revenues for many names, he adds. Revenue has risen three straight quarters for Israel’s CyberArk Software.

Burglar Alarm

The firm’s software aims to verify that system users have access permission. The software can also take defensive steps against intruders, Rudow says.

The stock, which has the highest-possible 99 Composite Rating from IBD, has been forming an irregular double-bottom basing pattern. On Wednesday it broke through its 43.59 buy point.

Sales have climbed 12 quarters in a row for Barracuda Networks (NYSE:CUDA).

That’s largely because some of its key products aim to safeguard email, which hackers increasingly attack to gain access to corporate systems, says Gary Miliefsky, chief executive of SnoopWall, a mobile cybersecurity firm. Hackers send emails to unsuspecting workers, hoping they open them, exposing their employer’s systems to Trojan horse viruses.

Much of the increase in industry revenue stems from customers that are adding layers of security to protect themselves. “The day when all you needed was a firewall are long gone,” Rudow said.

Related Fields

Business for firms in related segments is also up, he adds.

Tableau Software (NYSE:DATA), in the Computer Software-Database group, makes tools that let managers visualize big data. The security aspect is that the underlying data — which many hackers want to access — can be kept elsewhere, stored in a more secure location, Rudow says.

Tableau, which has a 99 Comp Rating, saw 2014 sales hit $ 413 million, up from 2013’s $ 232 million.

Splunk (NASDAQ:SPLK), also in the database group, has an 81 Comp Rating. The security application of its software is in analyzing where apparent hacking attempts into a user’s system are coming from. “But it’s still an expensive stock,” Rudow said.

Investor’s Business Daily – Investing RSS

You may also like...