Cyber Security Stocks 101: Valuation Means Nothing
It happened with U.S.-listed Chinese stocks, then solar panel stocks; 3D printer stocks, then gold stocks—a cycle of epic wealth creation followed by an equally epic period of wealth destruction. Are cyber security stocks next?
Timing, as they say, is everything.
Even in a slow-growth world, there are particular industries experiencing above-economy rates of growth which institutional investors latch on to. Recently, cyber security stocks have been some of the best risk-capital stocks generating large capital gains in an otherwise lackluster market. And more gains could be on the way for my top cyber security stock for 2016.
Frankly, these positions are just the kind of stocks that can get decimated—cut in half if you will—on any catalyst that reckons with global capital markets.
But, with relative certainty, or the absence of shocks, cyber security stocks should have a lot more legs in this market for the simple reason that these businesses are generating material growth in their financial results.
Top Cyber Security Stocks for 2016
Naturally, reasonable valuation isn’t the kind of thing that applies to this group.
Many of these companies aren’t really generating much in the way of earnings because they’re reinvesting large amounts of cash back into their businesses. But there are a few reasonably priced securities if you know where to look. Here are my top cyber security stocks for 2016.
Fortinet Inc. (NASDAQ:FTNT) is a growth cyber security company with a rich valuation and high Wall Street expectations.
This stock is high maintenance. It has to meet or beat or institutional investors are going to abandon ship. But it is a growth story.
This stock is liquid and highly tradable. The company’s next quarterly results are due out shortly.
Check Point Software Technologies Ltd. (NASDAQ:CHKP)
Another growing cyber security company that’s been consolidating on the stock market this year is Check Point Software Technologies Ltd. (NASDAQ:CHKP).
This is a $14.0 billion cyber security company that’s been more consistent in its financial growth. The shine has come off this position of late. Check Point Software’s upcoming earnings report will be the stock’s next big catalyst.
Palo Alto Networks, Inc. (NYSE:PANW)
Then there’s Palo Alto Networks, Inc. (NYSE:PANW). This highly tradable large-cap recently flirted with $200.00 a share and has pulled back into a kind of price consolidation commensurate with the broader market.
There’s a lot of potential with this stock going forward. Again, like the other cyber security positions, Palo Alto stock has to produce the goods or investors will jumps ship.
So far, however, the business has been able to meet or beat Wall Street consensus. This fiscal year, total sales are expected to grow some 40% comparatively. Next fiscal year’s sales growth outlook is currently around 30%.
On news of a major security breach at either a government agency or a well-known company, cyber security stocks tend to advance materially.
It’s pretty reasonable to expect that cyber security will continue to be a growth enterprise. This particular subsector of the information technology industry is well positioned for good business conditions.
In a market where double-digit financial growth is a difficult thing to achieve, big investors are chasing growth stocks and as long as these companies can play and win at the “expectations” game.
Accordingly, cyber security stocks shouldn’t experience a dramatic price correction unless there’s a material shock to the system. But if you stick to these top cyber security stocks for 2016, you should make out better than most.