The year 2016 so far has not been as good as the last two years for the cyber security stocks. Numerous data breaches at high-profile business houses and government agencies prompted the need to impose tighter security measures last year, which in turn had led to a rally in cyber security stocks.
These stocks may again witness momentum owing to the recent data breach at The World Anti-Doping Agency (WADA). The latest data breach was reported this week.
The Story So Far
The WADA has revealed that two Russian hacker groups – Tsar Team and Fancy Bear – have broken into the agency’s database, and stolen drug-test results and confidential medical data related to Rio Olympics 2016. The day before, the hackers had posted confidential medical information on noteworthy U.S. Olympic athletes including Simone Biles, Elena Delle Donne, Serena and Venus Williams.
The website used to leak the information was created on Sep 1. The cyber-criminal groups have threatened to disclose more confidential data on other nations’ athletes in the future.
Following the leak, the U.S. government started a probe, suspecting the involvement of the Russian government to undermine public confidence ahead of the Presidential Election.
The issue has been given utmost importance, particularly because one of the hacker groups, Fancy Bear, is already suspected of hacking into the Democratic National Committee's (DNC) computer network this June. It was then that CrowdStrike, a firm hired by DNC to investigate the attack, had determined that Fancy Bear was probably working for the Russian military.
In fact, Fancy Bear has been actively involved in a number of security breaches and propaganda operations. As per The Washington Post, last April, Fancy Bears had hacked the French TV5Monde station and keep the network off the air for as long as 18 hours.
The U.S. government’s suspicions on the involvement of Russia could be attributed to the ban of 119 Russian athletes from Rio Olympics 2016 after the WADA unearthed had a widespread state-sponsored doping scheme.
The U.S. believes that this could be a form of retaliation by the Russian government through which it seeks to raise doubts on the integrity of individual athletes as well as the various Olympic bodies.
However, Russian presidential spokesperson, Dmitry Peskov has denied any involvement of the Russian government in the whole episode.
How Will Cyber Security Stocks Benefit?
The silver lining to this episode would be the increased 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 the U.S. government as well as the International Olympic Committee (IOC), it could well bring cyber security 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, cyber security 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 cyber security 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 Cyber Security Space
We expect the aforementioned developments to drive growth for cyber security companies. Here are some favorably-placed stocks in this sector, which may gain momentum in the short term.
Infoblox Inc. , sporting a Zacks Rank #1 (Strong Buy), has a long-term EPS growth rate of 18%. This is much higher than the industry average of 14.6%. The company has also surpassed the Zacks Consensus Estimate thrice in the last four quarters with an average positive surprise of 69.1%.
Proofpoint Inc. (PFPT - Free Report) carries a Zacks Rank #2 (Buy) and has a long-term EPS growth rate of 29.3%. This is much higher than the industry average of 14.6%. Further, the company has surpassed the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 14.4%.You can see the complete list of today’s Zacks #1 Rank stocks here.
VASCO Data Security International Inc. , carrying a Zacks Rank #2, has a long-term EPS growth rate of 15%. This is much higher than the industry average of 12%. Moreover, the company has surpassed the Zacks Consensus Estimate thrice in the last four quarters with an average positive surprise of 105.2%.
Science Applications International Corporation (SAIC - Free Report) 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 9.8%.
Apart from data breach episodes, these stocks have managed to grab the spotlight with their notable performances, supported by solid earnings and impressive growth projections. These factors make us more or less sure that investing in these stocks would yield strong returns for your portfolio in the short term.
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).
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