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US-Iran Tension Calls for Investing in Cybersecurity Stocks

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The U.S.-Iran proxy war may now into a direct one in the digital arena. U.S. cyber security firms working with the Trump administration are reporting multiple evidences of spear-phishing emails from Iranian hackers. This, however, provides ample growth opportunities for cybersecurity firms, which had slumped in 2019.

U.S.-Iran’s Disputed Cyber Attack History

The two oil-rich countries of the Middle East, Iraq and Iran, have been in a troubled relationship since 1980. America’s support to Ba'athist Iraq during the Iran-Iraq War had pulled the states into conflict. Moreover, Iran has had no formal diplomatic relationship with the United States since 1980. Now, the assassination of the head of Iran’s Quds Force, Qasem Soleimani, has reignited suppressed tensions, with Iran vowing to retaliate.

Tensions with Iran escalated last year as the United States had withdrawn from the 2015 nuclear deal followed by multiple rounds of sanctions. Iran, by the way, has a reputation of launching cyber-attacks on the U.S. government. In 2016, the United States had charged Iranian hackers for a series of cyber-attacks on American banks.

In the past few weeks, representatives from CrowdStrike Holdings, Inc. CRWD and FireEye, Inc. FEYE, who track hacking activities for the U.S. government, reported that hackers are working for the Iranian government. Iranian government-aided hackers are sending waves of spear-phishing emails that target U.S. government agencies and major sectors like oil and gas.

Further, FireEye confirmed two such spear-phishing emails, one of which was seemingly sent by the Executive Office of the President, trying to recruit employees to an economic adviser post. The other mail contained details on updating Microsoft Outlook’s global address book. However, it is not clear if hackers have been able to gain access to the targeted networks with the emails.

Iran’s cyber-attack threats have increased in the past one month after the Trump administration imposed sanctions on the Iranian petrochemical sector. The Department of Homeland Security confirmed on Saturday that the agency tasked with cyber security reported a rise in malicious cyber activities directed at U.S. government agencies by Iranian regime actors and proxies.

2020 - An Opportunity for Cybersecurity Providers

Data security was a major problem for cybersecurity companies in 2019, making it one of the worst years for them. Evidently, the Ponemon Institute’s 2019 report on Cost of a Data Breach stated that the average cost of a data breach reached $3.92 million, which is the highest on record. In the first half of 2019, around 40000 publicly disclosed breaches were reported.

This had a huge impact on customers as they stopped engaging with a brand digitally after a data breach was reported. An October 2019 survey states that 81% customers avoided going online on a brand reporting breach in data security, eventually leading to brand erosion and reputational damage for companies.

However, 2020 seems to be more promising for companies dealing in cyber security. Firms need to focus on three major issues — insider threats, phishing scamsandexposed databases. Monitoring employees and securing endpoint data through proper software can help defend against insider threats. Additionally, phishing scams can be avoided by training employees and making them aware of threats that may land in their inboxes. With the advancement in technologies, it is crucial to check and recheck that critical company data are password protected and has sufficient lock down mechanism.

3 Cyber Security Stocks to Invest In

The rising threat of cyber-attack from Iran and the prevailing data security breach is a primary concern that U.S. cyber space faces at present. Cyber security firms are working hard to perfect technologies, giving enough room for stocks to rise as demand increase.

Evidently, the ETFMG Prime Cyber Security ETF (HACK) closed 1.2% higher on Jan 6 and has gained 3.4% in the past five days. On the date, shares of CrowdStrike rose 8.6%, while Rapid7, Inc. RPD closed 3.2% higher after Iran threatened to retaliate.

Thus, we have shortlisted three stocks that are posed to grow given the current scenario.

Fortinet, Inc. (FTNT - Free Report) provides broad, integrated and automated cybersecurity solutions, globally. The company offers security and networking functions that include firewall, intrusion prevention, anti-malware, virtual private network and much more. Its Fortinet Secure SD-Branch extends the benefits of SD-WAN, allowing network access, converging WAN and security, with increased visibility, reduced complexity and improve performance. And the new FortiCloud Services gives customers cloud security and management capabilities that are easy to implement and manage due to high flexibility.

Fortinet’s expected earnings growth rate for the current quarter is 18.6% against the Zacks Security industry’s projected earnings decline of 9.8%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 2.6% upward over the past 60 days.Fortinet carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CrowdStrike develops security solutions in the United States, its Falcon platform, a cloud-based security solution helps in protecting workloads across on-premise, virtualized and cloud-based environments running on various endpoints. CrowdStrike has teamed up with Dell and Secureworks to help mid-market customers, state and local governments, and educational institutions that do not have a personalized SIEM platform and SOC. The company has displayed a well-organized portfolio of vulnerability management tools, to facilitate metered billing on AWS, and simplify the management of Windows firewalls.

CrowdStrike’s expected earnings growth rate for the next quarter is 78.7%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 17.5% upward over the past 60 days.CrowdStrike carries a Zacks Rank #2 (Buy).

Mimecast Limited MIME is an email and data security company that provides cloud security and risk management services for corporate information and email. In 2019, the company expanded its technical portfolio by acquiring data migration technology provider Simply Migrate to help customers and prospects move to cloud more quickly, reliably and inexpensively.

This Zacks Rank #2 company’s expected earnings growth rate for the current quarter is 44.4% against the Zacks Internet - Software industry’s projected earnings decline of 54.9%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 4.4% upward over the past 60 days.

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