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3 Stocks to Watch as Cybersecurity Companies Rally on SolarWinds Hack

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Cybersecurity stocks rallied last Friday as investors bet on the mounting number of victims of a data breach involving a SolarWinds’ (SWI - Free Report) software that could further boost IT security spending by government agencies and corporates.

The First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) , which tracks the performance of companies engaged in the cybersecurity segment, gained 5% last Friday, outperforming the broader market indices. The Dow Jones, Nasdaq, and the S&P 500 fell 0.41%, 0.07% and 0.35%, respectively on Dec 18.

SolarWinds Hack

FireEye (FEYE - Free Report) was the first to report on Dec 8 that highly sophisticated state-sponsored hackers stole its Red Team tools, which are used by the company’s officials for testing customer security. It was later discovered that hackers used a backdoor in SolarWinds’ Orion network management software.

Following that, a number of U.S. state agencies and organizations, including Microsoft (MSFT - Free Report) reported data breaches using the SolarWinds’ software.

In a Dec 14 SEC filing, SolarWinds said that its Orion network monitoring products, rolled out between March and June, have fallen prey to a highly-sophisticated, manual supply-chain attack. SolarWinds believes its Orion networking monitoring products have been used to compromise the servers of nearly 18,000 of the company’s customers.

Cybersecurity Stocks to Gain

The silver lining to this episode would be the heightened demand for security-related purchases by both companies and governments that would be spurred by such a high-level security breach.

While the incident is a major jolt for SolarWinds as this could tarnish its reputation, it could bring cybersecurity stocks back into the limelight.

Notably, 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 fueling demand for the services offered by Internet-security companies.

Furthermore, as the number of coronavirus infections keeps skyrocketing in the United States, companies have notified employees to continue working remotely and now face the challenging task of adapting their security measures to meet the need of the hour.

Moreover, various independent research firms forecast stellar demand in the days to come. According to a Fortune Business Insights report, worldwide cybersecurity market size will reach $281.74 billion by 2027 from $112.01 billion in 2019, suggesting a compounded annual growth rate of 12.6% during the period.

Stocks to Focus On

Considering the above-discussed factors, it makes sense to stay invested in this hot industry group as cybersecurity players are likely to witness sturdy growth in the near term.

Here we focus on three stocks that are anticipated to benefit from this elevated spending.

Qualys (QLYS - Free Report) , which provides cloud security and compliance solutions, saw its shares appreciating 18.7% last Friday. The Zacks Consensus Estimate for 2020 earnings has moved 8.7% north to $2.87 per share over the past 60 days.

The company is benefiting from the surging demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely. Accelerated digital transformations by organizations are also fueling demand for this Zacks Rank #2 (Buy) company’s cloud-based security solutions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


FireEye is currently focusing on cloud-based protection services. Earlier this year, it unveiled FireEye Messaging Security, which protects collaboration tools like Microsoft Teams and Slack. This solution is designed to reduce risks of cyber-infiltrations by scanning objects and links shared in the collaboration tool to identify zero-day malware and phishing links in real time.


In addition, FireEye has added the User and Entity Behavior Analytics (UEBA) tool to its Helix platform. The tool uses machine learning to set a baseline behavior and monitors any deviation from it. This helps the firm identify risky entities and protect organizations from security threats.

This Zacks Rank #3 stock rallied 33.7% last Friday. The consensus mark for the ongoing year’s earnings has been revised 16% upward to 29 per share in the past 60 days.


Fortinet (FTNT - Free Report) is benefiting from dominance in the Unified Threat Management (UTM) space, which is one of the fastest-evolving segments in the network security space. Also, this Zacks Rank #3 (Hold) company has been gaining from the heightening cyber-attack risks that are propelling demand for its FortiMail platform.


This Sunnyvale, CA-based stock gained 6.9% on Dec 18. The consensus mark for its current-year earnings has moved 21 cents north to $3.25 per share in 60 days’ time.


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