We are approaching the end of 2016, and the year so far has not been a good one for cybersecurity stocks, just like the last two years. Numerous data breaches at high-profile business houses and government agencies led to the imposition of tighter security measures last year, which in turn spurred a rally in cybersecurity stocks.
However, Russian hackers remained in the limelight this whole year, either for their supposed involvement in the Democratic National Convention (DNC) leak or The World Anti-Doping Agency (WADA) data breach.
Suspicion over the involvement of the Russian government in various other U.S. federal data breaches and focus on ways to make cybersecurity more foolproof stole the show during the debate between this year’s presidential candidates – Donald Trump and Hillary Clinton.
Before elections, the U.S. intelligence and various cybersecurity experts alleged that the Russian domestic security agency – FSB and Russian army’s intelligence branch – GRU made repeated hacking attempts to undermine Hillary Clinton’s campaigns.
Russian hackers once again came into the limelight after Donald Trump’s win on allegations that Russia boosted his cause by hacking Democratic Party’s e-mails. Trump posted a response on Monday through his Twitter TWTR account asking “Why wasn’t this brought up before election?”
On the same day, in another tweet he said “Unless you catch ‘hackers’ in the act, it is very hard to determine who was doing the hacking.”
The recent events have led to a debate on Donald Trump’s stance toward growing cybersecurity threats from Russia, especially when the FBI and other U.S. intelligence agencies have voiced their concerns.
Cybersecurity Stocks to Gain
The silver lining to this whole episode is the increased demand for security-related products among companies and governments. We believe that it could well bring cybersecurity stocks back into the limelight.
Note that the financial well-being, brand image and reputation of enterprises and governments are always exposed to the risk of cyber threats. Consequently, cybersecurity has become a mission-critical, high-profile requirement.
Clearly, cases of data breaches drive the need to beef up cyber safety measures, thereby increasing demand for the services offered by Internet security companies.
Furthermore, with rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.
Moreover, various independent research firms forecast strong demand ahead. According to a Markets and Markets report, worldwide cybersecurity spending will reach $101 billion in 2018 and $170 billion by 2020. Gartner had earlier revealed that IT security spending peaked to $75 billion in 2015.
Some Well-Placed Stocks in the Cybersecurity Space
We expect the aforementioned developments to drive growth for cybersecurity companies. Here are some favorably-placed stocks in this sector, which may gain momentum in the short term.
Proofpoint Inc. PFPT carries a Zacks Rank #2 (Buy) and has a long-term earnings per share (EPS) growth rate of 25.8%. This is much higher than the industry average of 14.5%. Further, the company has surpassed the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 21.0%.
Juniper Networks Inc. JNPR, which carries a Zacks Rank #2, has a long-term EPS growth rate of 9.5%. Moreover, the company has surpassed the Zacks Consensus Estimate three times in the trailing four quarters. It has an average positive surprise of 3.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FireEye Inc. FEYE carries a Zacks Rank #2 and has a long-term EPS growth rate of 16.8%. The company has also surpassed the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 14.5%.
Barracuda Networks Inc. CUDA carries a Zacks Rank #2 and has a long-term EPS growth rate of 21.8%. This is much higher than the industry average of 18.1%. Further, the company has surpassed the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 525.0%.
Science Applications International Corporation SAIC carries a Zacks Rank #2 and has a long-term EPS growth rate of 5%. The company has also surpassed the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 9.2%.
Amid the data breach episodes and the increasing worries about Russian involvement, these stocks have managed to grab the spotlight with their notable performances, supported by solid earnings and impressive growth projections. These lead us to believe that investing in these stocks would yield strong returns in the short term.
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