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Finance: Get smart with cyber security stocks

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PHUKET: The recent New York Stock Exchange (NYSE) trading halt triggered a brief rush into cyber security stocks on renewed fears of yet another serious hack attack.

While that incident was apparently caused by a computer malfunction, it shows just how jumpy investors are when it comes to the possibility of a new high-profile hack similar to the one that hit Target in 2013, during which as many as 110 million customers may have had their personal data stolen, or the embarrassing Sony hack allegedly carried out by North Koreans, and then again with the recent news that the Chinese may have stolen employee data of millions of US Federal employees.

Given the steady stream of high profile hack attacks, investors might want to take a closer look at the following important cyber security stocks along with their returns:
Large cap Palo Alto Networks Inc (NYSE: PANW) offers an enterprise security platform with a firewall to prevent data leaks or hacks. Shares are up over 50% year to date (YTD), up around 145% over the past year and up almost 260% over the past five years.

Israel-based large cap Check Point Software Technologies Ltd (NASDAQ: CHKP) offers a range of IT security products and services, including anti-virus products. Shares are flat YTD, up more than 20% over the past year and up over 140% over the past five years.

Mid cap Fortinet Inc (NASDAQ: FTNT) offers high performance network security products and services plus it has the third-highest market share in security appliances after Cisco Systems and Check Point. Shares are up nearly 40% YTD, up 75% over the past year and more than 420% over the past five years.

Small cap Imperva Inc (NYSE: IMPV) offers cyber and data center security products. Shares are up 40% YTD, up 215% over the past year and up more than 160% since late 2011.

Israel-based small cap Cyberark Software Ltd (NASDAQ: CYBR) is focused on securing customers in the financial services, energy, retail and healthcare markets. Shares are up 41% YTD and up more than 85% since last September.

WHAT ARE INVESTOR RISKS?

Aside from the usual risks, it’s worth mentioning that individual cyber security stocks tend to face intense competition globally, while small cap players may have limited product lines, markets, financial resources or experienced personnel.

There is also a limited pool of good IT security personnel who tend to command high salaries – meaning there is intense competition for staff at cyber security companies and their private or public sector customers.

CYBER SECURITY ETF: A BETTER ALTERNATIVE

The PureFunds ISE Cyber Security ETF (NYSEARCA: HACK) was launched in November 2014 as the world’s first cyber security ETF for investors who do not want the risks associated with choosing individual cyber security stocks.

HACK seeks to replicate (after an expense ratio of 0.75%) the price and yield performance of the ISE Cyber Security Index by investing in a portfolio of 32 stocks providing cyber security solutions that include hardware, software and services.

As of mid July, approximately 70% of the ETF was invested in US stocks with another 16% invested in companies based in Israel and the remainder in companies based elsewhere. HACK has also achieved a respectable performance of about 25.5% since its November inception and has a market cap at about the $1.3 billion level.

Don Freeman,BSME is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket. He has over 15 years of experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers. Call for a free portfolio review. Don can be reached at 089-970-5795 or email: freemancapital@gmail.com.

— Don Freeman

 

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