Forget the ‘war on terror’.
The ‘war on drugs’? That’s so 1990s.
There’s a new money pit in town. The ‘war on hackers’.
According to US financial paper Barron’s, terrorism has lost its slot as the top security threat faced by the US. Now cyber-attacks are the big bogeyman.
The military-industrial complex needs a good story to justify its never-ending expansion. This one’s a cracker.
More to the point, a good story often delivers fantastic investment opportunities too. Here’s how to hitch a ride on this one…
Cybersecurity – hype or not, it’s still going to be very profitable
$250bn a year. That’s what hacking costs the US, reports Barron’s. We’re talking everything from attacks on utility infrastructure to intellectual property theft.
You might wonder how the internet can pose quite such a huge threat. And it’s hard to get to the bottom of a lot of these cybersecurity claims. There are a lot of people with a lot of money and power at stake who have a vested interest in playing the whole thing up.
Defence departments are trying to avoid government budget cuts – they need a new war to get behind. And most of the data on cyber-attacks seems to come from internet security consultants, who are hardly neutral parties.
However, even if the wilder claims are over-hyped, there’s clearly a problem to be addressed here. Put aside worries about the military-industrial complex, and our governments’ desire to capture our every movement, for just a moment. Cybersecurity is a serious commercial issue.
The internet has made life a lot more convenient in lots of ways. But if customers get scared that their credit card and bank details are at risk of being pinched by the Russian mafia, then that’s bad for business. Being able to boast of good security could even become a competitive advantage in the longer run.
Regulators are also pushing companies to share more data on security breaches, notes Jonathan Guthrie in the FT. And now the UK’s security agencies – MI5 and GCHQ – have written to the chairmen of FTSE 350 companies urging them to participate in a “cyber governance health check.” The chairmen are meant to complete this questionnaire themselves, notes the FT.
Chances are this will just alert an awful lot of chairmen to how little they understand about computers, let alone their own company’s ‘cyber governance’. So whether they like it or not, companies are going to end up having to spend more money on internet security.
And the more of our data that ends up online, the more security we’ll need. As Barron’s notes, this “translates into big money for technology firms, consultants, and defence contractors working against cyber-attacks.”
Some of the best ways to invest in cybersecurity
So how can you invest in the sector? Most of the big defence companies have some sort of exposure to cybersecurity, but arguably not enough to make a huge difference to their overall earnings.
A number of ‘hot’ stocks in the sector have grown very popular with investors. One is Palo Alto Networks (NYSE: PANW). It trades on a ridiculous price/earnings ratio of more than 200. However, if you’re in the market for a punt, the stock is trading near its 52-week low, and with takeover fever hitting the sector, it might see a rally based on pure performance chasing.
For a more long-term bet, Reshma Kapadia in Barron’s likes the look of Fortinet (NYSE: FTNT), and Tara Clarke in the US edition of Money Morning agrees. The company is a pure play on cybersecurity which has taken a knock recently, due to some disappointing results. However, the company offers a relatively cheap and simple cybersecurity ‘solution’ which should appeal to “companies looking to do more with less.”
Cybersecurity is also intimately connected with ‘big data’ – the attempts by companies to make use of the huge quantities of information they have collected on us. My colleague Matthew Partridge wrote about ‘big data’ for MoneyWeek magazine recently. If you’re not already a subscriber, subscribe to MoneyWeek magazine.
By the way, if you want to know more about the background to the ‘war on hackers’, have a read at this excellent Wired profile of the man behind it all, general Keith Alexander, director of the National Security Agency.
• This article is taken from our free daily investment email, Money Morning. Sign up to Money Morning here.
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