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With the rise of remote work, Cybersecurity companies have been soaring – and it is here to stay. Companies have invested millions of dollars to sustain operations and to adapt to a thriving digital age.
Businesses on the cusp of digitalization expose themselves to vulnerabilities they’ve never had to consider before, such as hackers and malicious third-parties accessing sensitive data and information.
And with the fallout of Facebook over their data usage, it is now more important than ever to properly safeguard your digital infrastructure. This applies to Fortune 500 companies and small businesses alike.
Cybersecurity stocks are poised to benefit as companies shift their capital away from real-estate and into their remote-work infrastructure. Here is our list of the best cybersecurity stocks for investors to consider.
What is Cybersecurity?
Cybersecurity is the practice of protecting networks, devices, and data from unauthorized access or illegal use. Moreover, it encompasses safeguarding the confidentiality, integrity, and availability of information, which is paramount as businesses rely on key data points to drive operations.
Companies with poor cybersecurity are vulnerable to data breaches or malware that could decimate their operations and send their stock price spiraling.
This is a risk that companies cannot afford to make. Their capital allocation to cybersecurity during the coronavirus pandemic confirms it. Let’s look at the best cybersecurity stocks that have benefited from the shift to remote work.
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At a Glance: Cybersecurity Industry Leaders
- Crowdstrike (CRWD)
- Zscaler (ZA)
- Cloudflare (NET)
- Okta (OKTA)
- Palo Alto Networks (PANW)
Best Cybersecurity Stocks
We’ll categorize these stocks into three categories: industry leaders, growth potential, and value.
#1. CrowdStrike (CRWD)
CrowdStrike Holdings, Inc. is an American cybersecurity technology company based in Sunnyvale, California. CrowdStrike offers a cloud-delivered technology platform called “Falcon” that provides a wide range of products including anti-virus, endpoint detection and response (EDR), device control, managed threat hunting, IT hygiene, vulnerability management, and threat detection.
CrowdStrike IPO‘d in 2019 and is already an industry leader. Is this a Silicon Valley fluke? We don’t think so. It has seen its share price rise over 250% in the last year and has a market cap of $48 billion. The company was co-founded by a serial entrepreneur – George Kurtz. He was also the founder of Foundstone and served as the chief technology officer for McAfee.
During Kurtz’s time at McAfee, he realized that companies were paying tons of money for security and not getting the outcome they deserved. This revelation caused him to start CrowdStrike with the intention of it becoming “the Salesforce of Security.”
CrowdStrike uses artificial intelligence to foresee new attacks and to update their defense protocols in real-time. Right now, CrowdStrike handles more than four trillion events each week, the equivalent of handling more attacks in a single day than Twitter has tweets in a year.
Today, over 90% of CRWD’s business is annually recurring revenue, one of Wall Street’s favorite company indicators. The remaining 10% of revenue comes from their professional services team that responds to breaches.
Downtown Josh Brown calls this service the CrowdStrike SWAT Team because they come in and fix the situation. Kurtz reveals that CRWD limits this service to less than 10% of its revenue, but has also noted that it’s been quite successful in landing new clients.
Let’s highlight how this service also lands new enterprise clients. A company victimized by ransomware will call CrowdStrike for help. Naturally, CrowdStrike will deploy their mobile team and remediate the situation. Typically, the company is wildly impressed with its service and will employ CrowdStrikes Falcon solution across its platform.
Previous cybersecurity companies primarily focused on stopping malware, but half of the data breaches did not use malware. CrowdStrike turns the entire model on its head and focuses on halting the breach instead (they still employ AI-enabled software to combat malware).
So, how is CrowdStrike like Salesforce? It leverages cloud computing to collect data on their customer. They then use this data to employ a modular framework that offers customers a defense-in-depth approach.
The client can pick specific security services offered by CRWD that are unique to their data-sharing situation. This kind of customization allows clients to save money by only paying for the services that they need
The CRWD platform sells itself, considering 61% of customers have +4 modules, 44% have +5 modules, and 22% have 6 or more. As CrowdStrike adds new modules to their Falcon platform, they expand their total addressable market, making Wall Street giddy.
CrowdStrike is not a work-from-home stock, it’s a work-from-anywhere stock. The need for security will exponentially increase as data-sharing, and the Internet of Things market continues to skyrocket.
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#2. Zscaler (ZS)
Zscaler is an American cloud-based information security company headquartered in San Jose, California. It was founded in 2007 by Jay Chaudhry and K. Kailash, and currently has a market cap of $27 billion after watching its stock rise 284% in the last year.
Zscaler enables secure digital transformation by rethinking traditional network security and empowering enterprises to securely work from anywhere. It is the only zero trust platform that securely connects any user, device, and any app over any network.
Zero trusts is a network security concept that requires all users, even those inside the organization’s enterprise network, to be authenticated, authorized, and continuously validating security configuration and posture, before being granted access to applications and data.
Enterprises can sleep well at night, knowing their security is second to none. Zscaler offers four products on an integrated and comprehensive platform: Zscaler Internet Access (ZIA), Zscaler Digital Experience (ZDX), Zscaler Private Access (ZPA), and Zscaler Cloud Protection (ZCP).
CEO Jay Chaudhry is excited about ZPA’s potential, indicating in a recent earnings call that it only represented 13% of total revenue during the most recent quarter, but accounted for ~30% of the company’s new business.
Like CrowdStrike, Zscaler prides itself on simplifying IT and reducing consumer costs by eliminating point products from legacy network and security infrastructures.
Zscaler is the world’s largest security platform built for the cloud, with 140 billion transactions per day, 100 million threats detected per day, and 175,000 unique security updates per day. More than 450 companies in the Forbes 2000 rely on Zscaler to keep their data safe.
These threats aren’t going to stop when companies come back to the office. Zscaler is just getting started.
#3. Cloudflare (NET)
Cloudflare, Inc. is an American web infrastructure and website security company, providing content delivery network services, DDoS mitigation, Internet Security, and distributed domain name server services. NET has gained 362% in the last year and has a market cap of $25 billion.
Cloudflare specializes in content delivery, specifically the process of moving data out of central servers and into servers that are closer to the end-user.
Cloudflare supports various industries and companies of all sizes, including gaming, software as a Service, eCommerce, media and entertainment, the public sector, public interest groups, and state and local government.
Cloudflare has a unique go-to-market strategy for new products that differentiates itself from competitors. It often releases new, free services for individuals and small businesses to use, then improves upon the software as it gets feedback.
Once Cloudflare has made the necessary adjustments, it attempts to sell it to larger organizations with additional premium upgrades. Companies like Shopify, IBM, and DoorDash have jumped on these offerings. They now rely on Cloudflare to secure their online presence.
Cloudflare has been one of the best-performing stocks in the past year. Investors continue to buy in at all-time highs, ignoring its 64x P/E ratio and betting on its long-term mission.
#4. Okta (OKTA)
Okta, Inc. is an identity and access management company based in San Francisco that provides cloud software to help companies manage and secure user authentication into applications, web services, and devices. It was founded in 2009 and has a $36 billion market cap after its stock rose 115% in the last year.
Okta’s Identity Cloud platform provides identity management solutions that enable customers to secure their users and connect them to technology and applications. Its services suite include Adaptive Multi-Factor Authentication, Universal Directory, Lifecycle Management products, Single Sign-On, and API Access Management and Mobility Management.
More than 9,400 global organizations trust Okta to manage access and authentication, including Nasdaq, Adobe, FedEx, and National Geographic.
With companies digitizing at an unprecedented rate, it’s never been more important to verify the person’s actual identity on the other end of the line. Okta allows top companies to focus on their world-changing work, knowing their workforce and customer identity management is in good hands.
Some are concerned that Okta’s rise will slow as the pandemic eventually comes to an end, but their year over year growth since 2016 has been promising and their projections for 2021 look bullish, estimating a 40% YOY growth.
We believe that companies will continue to invest in digital transformation after the pandemic and will turn to Okta to provide their identity management tools. Okta’s suite of services is sticky, supported by its growing number of existing customers with an annual contract value greater than $100,000 (up 34% YOY for Q3).
It’s important to distinguish between the two markets that Okta specializes in: customer identity and access management (CIAM) vs workforce identity management. CIAM has a total addressable market of $25 billion, and workforce identity has a $30 billion total market.
CEO Todd McKinnon says that CIAM comprises just a quarter of Okta’s revenue, but it’s growing at an absurd 70% per year over the last two quarters. This gives Okta a new market to attack to increase its customer retention metrics and justify its soaring stock price.
#5. Palo Alto Networks (PANW)
Palo Alto Networks, Inc. is an American multinational cybersecurity company headquartered in Santa Clara, California. Its core products area platform includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other security aspects.
The company currently serves 85 organizations in the Fortune 100 and has a $37 billion market cap. PANW has increased 65% in the last year, comfortably outperforming the benchmark, but trailing its cybersecurity counterparts.
Palo Alto Networks is a legacy security firm and has acquired 11 software companies since 2018 to fend off the industry’s disruptors, like CrowdStrike and Zscaler. These acquisitions have helped Palo Alto maintain its reputation as the largest cybersecurity pure-play in the market.
The cybersecurity space will be fiercely competitive in the coming years, and Palo Alto’s strategy of acquiring everything in sight is not sustainable. However, the company’s current financials are strong, and it’s expecting a full-year 2021 revenue growth of 20%.
Related: Palantir Stock Analysis
Best Cybersecurity Stocks for Growth
Now onto our growth selections: Fortinet, Dynatrace, and CyberArk.
#6. Fortinet (FTNT)
Fortinet is an American multinational corporation that was founded in 2000 and is headquartered in Sunnyvale, California.
It develops and sells cybersecurity solutions, including but not limited to physical products such as firewalls, software and services such as anti-virus protection, and intrusion prevention systems and endpoint security components.
Fortinet is a legacy security vendor and has a similar business model to Palo Alto Networks. However, its 19% growth in 2020 growth was almost entirely organic and without the need for large acquisition spending.
This results in Fortinet having one of the highest profit margins in the industry, and a war chest of cash with no debt.
Nicholas Rossolillo, the founder of Concinnus Financial, says that Fortinet is the best buy amongst legacy security vendors and recommends investors purchase it instead of Palo Alto Networks, given their respective free cash flow multiples.
Fortinet’s $20.4 billion market cap is much higher than the other two stocks in this “growth” category, but its earnings per share are expected to grow 63% year-over-year. This metric more than satisfies the requirements of growth stocks.
#7. Dynatrace (DT)
Dynatrace is an American technology company that produces a software intelligence platform based on artificial intelligence to monitor and optimize application performance and development, IT infrastructure and user experience for businesses and government agencies worldwide.
Dynatrace employs AI to give organizations a view of its cloud-based operations and allow them to identify problems in real-time. Companies that purchase Dynatrace’s Software are seeking to automate their cloud monitoring.
Dynatrace’s most recent module, a “runtime application self-protection,” helps software developers build protection directly into applications themselves. This is the type of innovation that Dynatrace needs to continue its growth momentum.
The company has a relatively smaller market cap of $12 billion, but it’s planning on capturing more market share as it continues to add new capabilities to its AI-enabled observability platform.
#8. CyberArk Software (CYBR)
CyberArk is an Israel-based information security company offering Privileged Account Security, and its technology is primarily utilized in the financial services, energy, retail, healthcare and government markets.
CyberArk offers many products to protect against external and internal cyber threats and enable detection and neutralization of these attacks. CyberArk specializes in guarding against those who would use insider credentials to penetrate legacy network defenses.
It has a market cap of $6.48 billion, and its share price has risen 21% in the last year. CyberArk bulls are counting on the success of the company’s transition to a software-as-a-service (SaaS) model and increasing its streams of annual recurring revenue.
Related: Tesla Stock Analysis
Best Cybersecurity Stocks for Value
Last but not least, value. This category includes Norton LifeLock, CACI International, and Check Point Software Technologies.
#9. NortonLifeLock (NLOK)
NortonLifeLock Inc. (formerly Symantec Corporation) is an American software company that specializes in the consumer cyber safety business. Norton products provide multi-layer security and identity protection on desktop and mobile operator systems to defend against online threats to individuals, families, and small businesses.
Norton was founded in 1982 and was a member of the S&P 500 index before most cybersecurity companies even existed. It has a market cap of $13 billion and is down 23% in the last year. It trades at a modest 19x earnings, hence its inclusion in the value category of this article.
NortonLifeLock recently sold its business-oriented Analytics division to LexisNexis for $375 million and appeared to be shifting its focus to only protecting individuals and consumers online.
While almost every cybersecurity company we’ve discussed focuses on enterprise usage, Norton is doubling down on protecting the individual. Investors looking for a deep value play may find NLOK attractive at these levels.
#10. CACI International (CACI)
CACI International Inc is an American multinational professional services and information technology company that provides services to many US Federal Government branches, including defense, homeland security, intelligence, and healthcare.
CACI provides solutions and services that support business systems, command and control, communications, cybersecurity, and enterprise information technology. While its domestic operation is its main revenue source, CACI also conducts business in Europe by providing IT services and software products to international clients.
CACI has a market cap of $6.2 billion and is down 10% in the last year. However, value investors may welcome its 16x P/E and buy some shares.
#11. Check Point Software Technologies (CHKP)
Check Point is an American Israeli multinational provider of software and combined hardware and software products for IT security, including network security, endpoint security, cloud security, mobile security, data security and security management.
Check Point sells its products and services to enterprises, service providers, small and medium-sized businesses, and consumers. The company offers “Software Blades” grouped into functional packages to address specific security issues, similar to CrowdStrike’s Falcon modular.
Unlike the previous two value plays in this category, Check Point is up 17% on the year and has a relatively attractive P/E ratio of 20x, relative to its competitors in this sector.
Alternatives to Cybersecurity Stocks
Alternative Play #1: FAAMG & Big Tech
Amazon (AMZN) and Microsoft pretty much host the entire digital space on their cloud services, and they’ve begun adding security tools to their products.
Amazon Web Services owns almost half of the world’s public cloud infrastructure market and would be one of the world’s most valuable companies as a standalone operation. Many believe that Amazon will proactively spin-off AWS to get out ahead of the antitrust action.
AWS will more than likely develop a suite of security products to support their cloud services. However, it’s unclear if, or when, AWS will separate from the mothership (AWS might actually be the mothership as it subsidizes every new endeavor that Amazon pursues).
Microsoft’s Azure is the second big player in web hosting, garnering 15% of market share. But investing in Microsoft to gain exposure to web services is already an indirect strategy, and choosing them for cybersecurity would be a double-indirect play.
Alternative Play #2: Cybersecurity ETFs
There are several cybersecurity ETFs to choose from if you want exposure to the space but are concerned with diversification. Unfortunately, these thematic ETFs are pricey because they offer narrow exposure.
The top cybersecurity ETFs by AUM are CIBR, HACK, IHAK, BUG, and VCLO. ProShares just launched a leveraged ETF under the ticker UCYB for traders looking to capitalize on short-term price movement.
These ETFs’ primary holdings consist of the companies mentioned above in this article but vary on allocation, expense ratio, and niche within cybersecurity.
Related: Best Blockchain ETFs
How to Research Cybersecurity Stocks
We recommend researching cybersecurity stocks on Motley Fool because they have several contributors that ruthlessly cover the cyberspace. Their market insights will help you choose the best cybersecurity stock based on your investment strategy and goals.
Additionally, you can research cybersecurity stocks by jumping into their charts. There are plenty of free stock chart websites that can help you make more informed decisions.
Learn More: How to Research Stocks
Cybersecurity Stocks FAQs
What are the best cybersecurity stocks?
CrowdStrike (CRWD) has been one of the best performing cybersecurity stocks since the acceleration of digital adoption in 2020. They allow enterprises to customize their security features based on their specific needs, which allows their clients to save money and reduce their cloud complexity.
What are the best tech stocks to buy right now?
Big Tech refers to Facebook, Apple, Amazon, Microsoft, and Alphabet. These five companies account for 17.5% of the S&P 500 today. While Big Tech has been the best performers of the last decade, many believe that they’re just getting started and investors can still capture upside on these names.
What are the top 10 tech stocks?
The answer to this question depends on your definition of “top.” In terms of market cap, here are the top 10 tech stocks as of February 3, 2021:
#1. Apple ($2.270 T)
#2. Microsoft ($1.838 T)
#3. Amazon ($1.700 T)
#4. Alphabet (Google) ($1.416 T)
#5. Tencent ($886.23 B)
#6. Tesla ($813.45 B)
#7. Facebook ($764.05 B)
#8. Alibaba ($763.59 B)
#9. TSMC ($583.44 B)
#10. Samsung ($514.28 B)
Bottom Line: Cybersecurity Stocks
The wave of cybersecurity adoption was inevitable, and the pandemic just accelerated it. While this space is very competitive, there will likely be more than one winner because of the size of the cybersecurity total addressable market.
Not to mention, many of these companies offer niche services, and it’s not uncommon for an enterprise to be writing checks to CrowdStrike, Okta, and Zscaler at the same time.
If you want more commentary on cybersecurity stocks, check out the names that Motley Fool is betting on for 2021.
More Investing Resources:
- Best Stock Market Research Websites
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- Barron’s Magazine Review
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Sean Graytok owns share of CRWD and NET.