3 Cybersecurity Stocks That Are Leading the Way

Cybersecurity stocks are one of the fastest moving groups in the technology sector. And there’s good reason for that. The emergence of cloud and edge computing has created a demand for businesses to protect their data. And it’s a race they have to win.

It seems like every couple of months we hear about another company that has suffered a data breach. It just goes to show how quickly this segment is moving. Global Market Insights recently gave investors an idea on the potential of this industry. In their report, the firm projected that cybersecurity will grow at an average of 12% per year. And by 2026, this growing sector may be worth $400 billion.

Beyond the cloud, there are other catalysts that will propel cybersecurity stocks forward. The first is the likely growth in the “work from anywhere” culture. There are a growing number of companies like Facebook NASDAQ: FB that are allowing employees to work from home for the rest of 2020, and even companies such as Twitter NYSE: TWTR that are instituting policies to allow workers to work from home indefinitely.

Another catalyst for cybersecurity is the emerging 5G infrastructure. Once this infrastructure is fully built out, there will be advances in artificial intelligence that will lead to a new generation of connected devices. And the growth of this Internet of Things (IoT) economy will put a strain on existing cybersecurity measures.

And as all this is happening, many cybersecurity companies are adopting or already have a software as a service (SaaS) model that provides the predictable revenue that investors love.

With that in mind, here are three cybersecurity stocks to buy that take advantage of this growing trend.

Palo Alto Networks (PANW)

Traditional cybersecurity started with a firewall model. But firewalls had limitations as the volume of data has increased and where the company is located. This has pushed businesses to the cloud. Palo Alto delivers two of the most popular cloud-based cybersecurity products in GlobalProtect and Prisma Access.

Palo Alto Networks NYSE: PANW is benefiting from work-from-anywhere trend. The stock has climbed nearly 25% in the last month. Like many of its competitors in the sector, Palo Alto had a stellar earnings report that soundly beat analysts’ expectations. But investors were equally pleased with the company’s forward guidance.

The company’s stock was clearly aided by the mitigation efforts caused by the Covid-19 pandemic. And with thousands, if not millions, of Americans likely to be working from home either by choice or by order, the company should continue to benefit for the rest of 2020. According to CEO Nikesh Arora, this transition could last up to 18 months. “We believe this will prompt key trends to accelerate, including remote working models, shift to the cloud, and focus on AI/ML and automation to drive effective cybersecurity outcomes.”

CrowdStrike (CRWD)

Investors are beginning to love CrowdStrike’s NASDAQ: CRWD habit of beating analysts’ estimates. In fact, in their earnings report that the company delivered on June 2, the company not only beat EPS estimates, they showed a profit of 2 cents per share. It’s too early to tell if this was just a one-time surge. The company had yet to turn a profit since it went public in 2018. However, the trajectory was clearly heading that way and this report was confirmation of that.

Crowdstrike is different from Palo Alto in that it works in the area of endpoint security. The company provides systems and software to protect the devices that companies and employees use to view data. This is becoming a crowded field. However, according to Gartner research, CrowdStrike is still one of the leaders. In the last quarter, the company got a huge catalyst by partnering with Zoom Communications (NASDAQ:ZM). Zoom is growing in its own niche, but was running into trouble over security problems. The partnership with CrowdStrike is a catalyst for both stocks.

Okta (OKTA)

I love the simple elegance of Okta NASDAQ: OKTA and its approach to cybersecurity. Effective cybersecurity, as many analysts are discovering is about a lock and a key. In this case, the lock is the company’s ecosystem. That’s where most cloud-based solutions begin and end. But the limitation of this approach is that the employees are the key.

Here’s the problem. When those employees leave the “ecosystem” they still have a need to access data on their own mobile devices. And in a world where a company’s ecosystem can now be spread across thousands of employees’ homes there needs to be a way of protecting data when the lock and key are separated.

Okta’s solution makes each employee part of the ecosystem. Therefore wherever they go, they carry their security with them. Okta provided conservative forward guidance after having a great first quarter. Some analysts see this as a potential concern. But with many companies not providing forward guidance at all, I’ll take a little conservative approach.