Multiple industries are now on edge
The conflict between the Ukraine and Russia has placed a huge spotlight on cybersecurity stocks, as cyberspace has become another key battlefield in modern warfare. With high-profile cyberattacks hitting the headlines at greater frequency, investors now wonder which are the best cybersecurity stocks to buy now.
One of the recent cyberattack headlines involved Toyota (NYSE:TM), which became a high-profile victim of a cyberattack when its key supplier, Kojima Industries, succumbed to a breach, thus crippling production for its more well-known partner. Because Toyota deploys just-in-time supply chain management, any serious issue in a cog within the well-oiled machinery levers a devastating impact. Such vulnerabilities raises the profile of cybersecurity companies.
With tensions now seething globally, cybersecurity stocks will likely only rise in relevance. Even if we were to completely ignore the geopolitical flashpoint, protection against nefarious and criminal activities online has always been a top priority for governments and private enterprises. Therefore, these cybersecurity stocks could enjoy strong upside over the months and possibly years ahead.
Here are the best cybersecurity companies to consider today:
- Booz Allen Hamilton (NYSE:BAH)
- IBM (NYSE:IBM)
- Palo Alto Networks (NASDAQ:PANW)
- Fortinet (NASDAQ:FTNT)
- Zscaler (NASDAQ:ZS)
- Telos (NASDAQ:TLS)
- SentinelOne (NYSE:S)
Before you consider investing in cybersecurity stocks please consider that amid the possibility of increasing measures of escalation, merely owning cybersecurity stocks might not be enough to mitigate against a possible global repercussion. With that in mind, let’s dive into what makes each of these cybersecurity companies stand out among the crowd.
Booz Allen Hamilton (BAH)
First on this list of possible ideas for cybersecurity stocks to buy is Booz Allen Hamilton, a consultation firm that specializes in data analytics and addressing the dynamic battlefield of cyberwarfare. With customers ranging from private businesses, government institutions and military organizations, Booz Allen Hamilton represents one of the most versatile companies that offer relevant solutions for next-generation threats.
As well, investors are coming around to the narrative for BAH stock. True, on a year-to-date basis through the close of the March 4 session, shares were in negative territory. However, over the trailing week from the aforementioned anchor point, BAH gained 10%. Technically, momentum is very strong and why wouldn’t it be? Circumstances only appear to be escalating, not cooling down.
Booz Allen Hamilton posted revenue of $7.9 billion in the fiscal year ended March 31, 2021, up over 5% from the year-ago period. On a trailing-12-month (TTM) basis, BAH has posted sales of $8.1 billion. Given the worsening crisis in eastern Europe and threats of retaliation, cybersecurity stocks like BAH enjoy cynical relevance.
Admittedly, few people will call IBM an exciting entity. Long dogged by legacy businesses that failed to keep up with modern computing trends, over the last few years, Big Blue has been revamping itself to be an artificial intelligence and cloud-computing powerhouse. Still, even with this transition, its shares have not performed well.
For instance, over the trailing five years, IBM stock is down about 25%. And on a YTD basis, shares are down 7%. At the same time, some cybersecurity stocks have jumped higher based on the geopolitical flashpoint. With IBM, investors have an opportunity to acquire a solid company that may require a bit of patience for its growth narrative to fully pan out.
And because of the deteriorating situation in Ukraine and economically in Russia, the Kremlin may be planning future cyberattacks. Such a legitimate threat should bolster cybersecurity stocks, including Big Blue. With revenues of $57.3 billion in 2021, IBM is steadily recovering from the impact of the coronavirus pandemic, making it an intriguing longer-term idea.
Palo Alto Networks (PANW)
The idea that cyberattacks will only multiply in this tense geopolitical environment is hardly a new concept. As InvestorPlace contributor Dana Blankenhorn pointed out regarding Palo Alto Networks, while broader economic woes have knocked out sentiment for many sectors, “computer security remains a good business. With fears growing of Russian cyberattacks, Palo Alto’s services may come in handy.”
Indeed. Blankenhorn also adds that “cybersecurity is a hard business. The state of the art can change on a dime. It takes expensive programming talent to keep up with it. I’ve been saying here for two years that Palo Alto has both.”
Too often, when a massive event has an impact for a specific sector — in this case, cybersecurity stocks — the reaction is to simply buy any company under the umbrella. But Palo Alto commands the acumen and technology to keep up with the best rivals in the industry.
It’s got the numbers to back it up, with the fiscal year ended July 31, 2021 generating revenue growth of nearly 25%. Still, investors should play this carefully as net losses have racked up considerably.
An enterprise security solutions provider, Fortinet specializes in products such as physical firewalls, antivirus software, intrusion prevention systems and endpoint security components. With the crisis in Ukraine demonstrating that no international conflict these days occurs in a vacuum, Fortinet could enjoy a jolt of relevance.
On a YTD basis, FTNT is down 15%. However, that could start pivoting soon. While the Kremlin may decide to be measured in their possible cyberwarfare campaign, the interconnectedness of the globalized economy affirms that enterprises must take digital protection seriously lest they suffer financial consequences.
For instance, Toyota didn’t get hit — it was its partner. Nevertheless, the automotive giant suffered the consequences due to critical dependencies.
Moving forward, the future appears bright for Fortinet. In 2021, the company generated $3.3 billion in revenue, up 29% against the prior year’s result. As well, the company has consistently generated positive net income, making FTNT among the more reliable cybersecurity stocks to buy.
While the present focus regarding cybersecurity stocks is on the conflict in Ukraine, it’s important to realize that the Covid-19 pandemic also imposed everyday difficulties regarding digital protection. As we navigate the global health crisis, there’s a strong possibility that many white-collar workers could engage in hybrid solutions, operating from their cubicles to their living rooms.
And that circumstance is a nightmare scenario for the cybersecurity industry, according to the Wall Street Journal. On the flipside it’s “a hacker’s dream: a constantly changing mix of office and remote workers, devices that move in and out of the company networks, and security staffs stretched thin.” Without effective protocols, the new normal could leave critical digital infrastructures exposed.
That’s where Zscaler may be able to plug the necessary gaps. Leveraging what’s known as a zero trust exchange, Zscaler provides its enterprise clients with the shortest data transfer path between users and their destinations, enhancing both speed and security.
Given what happened to Toyota, private companies are fair game — whether for lone-wolf hackers or government-backed entities. Therefore, ZS could be worth a look within the speculative side of cybersecurity stocks.
Although cybersecurity stocks are fundamentally relevant for obvious reasons, that doesn’t mean there aren’t highly speculative names on this sector because there are. Case in point is Telos, which is down 40% on a YTD basis. Over the trailing year, it’s down almost 69%, making it one of the worst-performing securities thus far.
If that wasn’t enough to dissuade you, Telos is also facing an investigation regarding securities fraud allegations. During an earnings call on Nov. 15, 2021, Telos’ management team revealed disappointing news regarding the timing of key contracts, with executives acknowledging deficiencies in prior guidance processes. Upon the news, TLS stock dropped more than 28%, thus angering shareholders.
On the financial side, the situation is mixed. Telos generated nearly $180 million in revenue in 2020, up 13% against 2019’s result. And on a TTM basis, the company has posted sales of $223.3 million. But net income during the same frame is a loss of $35 million, which is glaring after the firm produced positive net income of $1.7 million in 2020.
Still, if you like the narrative of cybersecurity stocks, TLS might be worth a gamble.
A startup that launched its initial public offering in July 2021, SentinelOne is mainly for traders that have the stomach to ride out volatility. No, the performance isn’t as garishly crimson as Telos above. On a YTD basis, S stock has “only” lost 30% while over the trailing year, it’s down a more manageable 22%.
Still, as my colleague Dana Blankenhorn mentioned, cybersecurity stocks operate within a highly competitive and variable industry. You could be a winner one day and a loser the next. Being a recent IPO, SentinelOne has less of a track record to work with.
But if you don’t mind the added risk profile, there could be greater reward for S stock. In the year ended Jan. 31, 2021, SentinelOne posted revenue of $93.1 million, double the tally on a year-over-year basis. When looking at the numbers from a TTM perspective, the company has posted sales of $169 million.
Tempering the growth narrative is the widening losses, from $76.4 million in the red in fiscal 2020 to a loss of $237.2 million on a TTM basis. Given so many uncertainties, not just with the war but also with soaring consumer inflation, risk-on assets don’t enjoy the same demand they used to last year. But again, if you have the nerve, this could turn into something substantive.
This article originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.