- Cybersecurity stocks took a beating in the first half of the year, but this sector isn't going anywhere.
- CrowdStrike Holdings (CRWD): The largest cybersecurity company by market cap is primed to grow into its premium valuation.
- Zscaler (ZS): The company’s niche focus will continue to be in high demand as hybrid work becomes the norm.
- Microsoft (MSFT): The tech giant is acquiring its way into the cybersecurity space and represents a low-risk option in the sector.
- Palo Alto Networks (PANW): A legacy cybersecurity provider proving that it can compete in the cloud security era.
- Okta (OKTA): The leader in zero-trust security continues to add customers and revenue.
- Fortinet (FTNT): Provides best-in-class hardware solutions that is drawing the attention of organizations in need of data center security.
- Akamai (AKAM): A leader in helping to securely move data along the internet superhighway.
Cybersecurity stocks have fallen along with the entire tech sector. One concern was that many of these stocks were trading at high valuations, which was particularly concerning considering that many of these companies are not consistently profitable.
However, demand for cybersecurity is not going to shrink. According to Cybersecurity Ventures, the total damage of cybercrime in 2021 was over $6 trillion.
The company projects that number to grow by 15% this year.
The scope of the threat is backed up by the continuing expansion of work into the cloud as well as the fact that most work will remain fully remote or at least hybrid for some time.
With that in mind, the market is likely to remain volatile. And there may still be downward pressure on tech stocks in general and cybersecurity stocks specifically.
However, quality matters. These are seven cybersecurity stocks that you can buy and hold in anticipation of better days to come.
CrowdStrike is the leading cybersecurity company by market cap making it one of the biggest names in the cybersecurity sector.
Founded in 2011, CrowdStrike is a relative newcomer to the sector, and CRWD stock has only been trading publicly since 2019.
With that said, CrowdStrike was in the cloud from the beginning and its business model focuses on moving a company’s existing security protocols into the cloud. That makes it particularly suited for businesses that are supporting remote work in some capacity.
The company counts 63 out of the Fortune 100 companies as clients. This is translating into increasing revenue that the company is turning into free cash flow (FCF). In eight out of the last ten quarters, it has posted an FCF margin that was larger than 30%.
Zscaler has a couple of things in common with CrowdStrike.
First, Zscaler is a young company having only been in existence since 2008 (the stock went public in 2018). Second, Zscaler is also a cloud-first company in the cybersecurity space.
The biggest difference is that Zscaler is a niche player that focuses on allowing all users on a network to safely browse the internet and access applications no matter what device they’re on or where they are.
This means that, as with CrowdStrike, they are ideal for companies embracing remote work.
This is reflected in the company’s revenue which continues to increase on a sequential and year-over-year basis.
Many investors may already have exposure to the cybersecurity sector and not know it. That’s because many investors own Microsoft stock.
While not a pure-play cybersecurity company, Microsoft has upwards of $10 billion of revenue coming from its cybersecurity business. The company has the ability to integrate security tools into its cloud-based Office 365 software.
Microsoft spent over $500 million to acquire RiskIQ and CloudKnow Security in 2021. That may have some quibbling over the company’s dividend, but MSFT stock is a growth stock at its core.
If you’re considering stocks to buy and hold for the long haul, quality matters and Microsoft fits that description. One reason for that is the company’s ability to generate free cash flow (FCF).
As Mark Hake points out the company delivered an FCF margin of 40.6% in its last quarter which is even higher than its trailing 12-month FCF margin of 33%.
MSFT stock is down 20% in 2022 which is less bad than the Nasdaq index which is down 25% in the same time period.
Palo Alto Networks
Palo Alto Networks was widely recognized for its firewalls.
In fact, the company is the largest pure-play cybersecurity operation by revenue. Palo Alto is a leading provider of internet security solutions to an international roster of enterprise customers.
In March 2022, Morgan Stanley (MS) rated PANW stock as the number one choice in the sector.
The company’s App-ID security platform provides users with patented technology that identifies network traffic by application, user and content.
The in-depth visibility gives customers a better sense of the potential risks and threats for all traffic and applications.
The company has bought several cloud-native businesses in the past few years. That may explain why it is still not consistently profitable. However, Palo Alto says that it’s done making purchases for the time being.
If the company continues to generate double-digit revenue, growth investors should have few concerns.
Okta is the pioneer and leader in zero-trust architecture.
The company’s subscription solutions are focused on a user’s identity and include two-factor use authentication as biometrics.
Okta continues to grow revenue on both a quarterly and year-over-year basis. In fact, one reason why the stock has staged a mild rally in June is due to a stronger-than-expected earnings report.
When I suggested a group of cybersecurity stocks to buy at the beginning of 2022, I included Fortinet.
At the time I appreciated the company’s focus on VPN services. These services are becoming a best practice for individuals and corporations looking to protect their cybersecurity.
The company is also becoming the go-to hardware solution for companies looking to enhance the security of their data centers.
FTNT stock was down 13% in the first half of 2022 but it bounced off its 52-week low. Unlike several of the stocks on this list, Fortinet consistently posts a profit.
One reason for this may be that, unlike Palo Alto, Fortinet has been building its cloud business organically. If it continues to grow revenue it’s likely that the stock has formed an investable bottom.
Akamai is a content delivery network (CDN) that ensures data moving along the internet securely arrives at its intended destination.
The company recently launched a new product, Malware Protection, an edge-based solution that “detects and blocks malicious files uploaded to web apps and APIs.”
When looking at cybersecurity stocks to buy and hold, it’s important to look at the company it keeps. In the case of Akamai it counts 50% of the Fortune 500 as its customers.
On the date of publication, Chris Markoch 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.
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