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4 Cyber Stocks (and One ETF) to Buy Now

Cybercrime could cost the world $6 trillion this year, putting cybersecurity at a premium. These five cyber stocks and ETFs should benefit.


Cybercrime could cost the world $6 trillion this year, putting cybersecurity at a premium. These five cyber stocks and ETFs should benefit.

Today, I want to tell you about cyber stocks, and more specifically cybersecurity…

As the world becomes digitized, protecting valuable and sensitive data is essential. And as more valuable data is created, cybercriminals become increasingly motivated to steal the data and sell the data. A single cybersecurity company can block over 100 million threats per day. That’s equivalent to more than one thousand threats blocked every second. But all it takes is one breach to cause severe damage for companies and users.

For example, in 2013-14, Yahoo had all 3 billion of its accounts hacked in two separate attacks, one of the worst data breaches of the 21st century. In 2017, Equifax, one of the largest credit bureaus in America, announced a data breach that affected 143 million consumers, including social security numbers, birth dates and driver’s license numbers. In late 2018, Marriott International announced a data breach that compromised 500 million accounts, including personal information like passport numbers.

Hackers sponsored by foreign governments such as China or Russia account for about 23% of global breaches while organized crime accounts for another 39% of data thefts. The recently discovered Solar Winds hack hit Washington like a nuclear bomb as it impacted more than 250 federal agencies and businesses, an attack that Russia aimed not at our election system but at the United States government and many large American corporations.


Soaring Spending on Cybersecurity

Cybersecurity is one of the fastest-growing segments of IT spending. Chief information officers consistently rank cybersecurity as their top spending priority. Damages from cybercrime could cost the world $6 trillion this year, prompting individuals, companies, and governments to spend a bundle with cybersecurity firms to provide sophisticated software and services to protect proprietary data.

Cybersecurity is a powerful theme that will be further fueled by the growth of new technologies that offer connectivity to data, such as machine learning, cloud computing, and the Internet of Things (IoT). You should definitely consider adding some cyber stocks to your portfolio. Here are five ideas that you can take action on right now.

5 Cyber Stocks and ETFs to Consider

You could begin with the Global X Cybersecurity ETF (BUG), a basket of cybersecurity stocks of companies developing and managing security protocols to prevent intrusion and attacks on systems, networks, applications, computers and mobile devices. This ETF has 29 holdings and the top 10 stocks represent roughly 60% of the total market value of the basket. Seventy-four percent of the companies are incorporated in America, followed by 13% in Israel and 8% in Japan.

The best value cyber stock may be Check Point Software Technologies (CHKP), which develops and builds both software and hardware products for information technology (IT) security. The company offers network and gateway security services, data and endpoint security services, and management solutions.

Two fast-growing companies and momentum stocks are Zscaler Inc. (ZS) and CrowdStrike Holdings Inc (CRWD). Both have had a very good run since March 2020 so I would be more aggressive on pullbacks.

Zscaler provides security software and a cloud-based web and mobile security platform that also addresses threat protection, cloud application visibility, and networking challenges. Zscaler reported a net profit loss of $55 million in its most recent quarter, though revenue rose 52%.

CrowdStrike Holdings, founded in 2011, offers a cybersecurity platform that provides a range of products including antivirus, endpoint detection and response, device control, risk management, and threat intelligence. The company primarily sells its platform and cloud modules through its direct sales team.

Finally, I like a fairly new cybersecurity stock with lots of upside: Dynatrace (DT). This is a cloud software firm that was restructured and then re-launched through a 2019 IPO. Dynatrace’s software intelligence platform for enterprise cloud applications provides much-needed automation. The company’s revenue has been increasing at a 30% clip with positive cash flow and profitability. Its future looks bright, as it is still a small player in an absolutely huge cloud industry, spending more than $200 billion each year.

My advice for 2021 is to put some cyber in your portfolio, as the digital economy will grow exponentially from here.


*This post has been updated from an original version.

Carl Delfeld is a member of the Cabot investment team, and chief analyst of Cabot Explorer.