The Money in Cybersecurity

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If you knew something out there could wreak havoc on the U.S. on a scale equivalent to Pearl Harbor, would you be concerned? I know I would be. And I am. Because there is such a threat, and it could hit you right where you least expect it: your wallet. For the savvy investor, however, this threat could lead to a fatter pocketbook.

What threat?
We are living in a digital age. From commerce, to social interaction, to government, to online trading, each and every one of us has our lives tied to computers in some way. Have a social security number? You're in a computer database. Have a bank account? Your financials are readily accessed from any computer in the world. And, yes, this makes our lives very easy.

But guess what? This cyber world that allows so much also poses a very physical threat to the U.S., a threat that it is in no way capable of handling. General Keith Alexander, director of the National Security Agency and commander of U.S. Cyber Command, rated America's readiness for addressing a catastrophic cyberattack "three on a scale of ten." 

Can you be more specific?
Take the following scenario: Someone who's not a huge fan of the U.S decides, "Hey, I know, I'm going to hack into U.S. power grids and contaminate the water supply with lethal chemicals."  Sounds bad, right?

Let's say this same deranged individual decides, "Hey, I'm going to take it even further. I'm going to hack into U.S. banks and bring the U.S. economy to its knees..." Yup, scary.  

But the above scenarios are just hypothetical, right? Wrong. They are very real threats. Defense Secretary Leon Panetta has gone on record to say that U.S. adversaries such as China, Iran, Russia, and a variety of militant groups are more than capable of using "cyber tools" to do anything from derail trains, to contaminate water supplies, to shut down power grids. 

What's more, a terrorist group claiming to be behind a successful attack against U.S. banks in the fall has issued more threats. The Izz ad-Din al-Qassam Cyber Fighters says it's targeting Bank of America (NYSE: BAC  ) , J.P. Morgan Chase (NYSE: JPM-PP  ) , US Bancorp (NYSE: USB  ) , PNC Financial Services Group (NYSE: PNC  ) , and SunTrust Banks (NYSE: STI  ) .  The full scale of the attack is unknown. But think back to the banking fiasco a few years ago. Do we really need a repeat? Could bank's stocks survive an outright cyber assault? Or would they go crashing to their graves?

J.P. Morgan Chase and SunTrust have declined to comment on the threat, but both Bank of America and PNC stated that they're aware of the threats, but as of yet have not had any serious issues. PNC did state via Facebook, however, that "PNC systems continue to be affected by the current threats against U.S. banks. We understand your frustration with the situation and continue to work to resolve the issue."  

Well, that sounds horrible!
True. But there is a silver lining amid all this talk of doom and gloom, and that is that the government is taking notice of these escalating threats, and there are a number of companies that could greatly benefit from the increased need for cybersecurity. In fact, analysts expect the cybersecurity market to grow 50% over the next few years. 

Three companies that could be poised for greatness are CACI International (NYSE: CACI  ) , SAIC (NYSE: SAI  ) , and ManTech International (Nasdaq: MANT  ) . They provide technical security programs in the U.S. and internationally.

Better yet:

  • According to CACI's latest quarterly results, the company reported an adjusted net income increase of 1.7% compared with the same time last year. Additionally, Lockheed Martin (NYSE: LMT  ) awarded CACI's cybermarket division a $36 million five-year subcontract to provide cyberforensics and information technology solutions for the Department of Defense Cyber Crime Center. 
  • SAIC, along with Intel (Nasdaq: INTC  ) subsidiary McAfee, is on the cutting edge of cybersecurity by combining McAfee's firewall enterprises and SAIC's CloudShield CS-4000. The joint solution to cyberattacks is touted as being one of the industry's most secure firewalls, providing what's being called "Enterprise ready protection from zero day and reconnaissance attacks." Plus, this joint solution is supposed to reduce acquisition and maintenance costs. 
  • ManTech is one of the companies providing cybersecurity to the Department of Justice under the Information Technology Support Services (ITSS-4) contract, which has a ceiling of $1.4 billion through the end of fiscal 2017.  

More great news
With the dwindling defense budget, defense giants such as Northrop Grumman (NYSE: NOC  )  and General Dynamics (NYSE: GD  ) have seen the writing on the wall and moving to incorporate more cybersecurity initiatives into their business.

  • Northrop partnered with MIT, Carnegie Mellon, and Purdue to create the Cybersecurity Research Consortium. Their objective is to "tackle major cyber problems like attribution and supply chain risk."  Martin Simoni, site director for Northrop Grumman's Xetron business unit, stated "Educating and developing home-grown talent is critical in today's highly competitive job market. Our cyber master's program will allow our technical experts to groom students on the job and in the classroom." 
  • General Dynamics has decades of "cyber domain expertise," and provides the only NSA-Certified SME PED, which is a secured wireless phone and PDA . This coupled with an impressive list of customers and products  has allowed General Dynamics to maintain a backlog of $9.6 billion for its Information Systems and Technology (IS&T) division. Plus, with $22.4 billion in estimated potential contract value, General Dynamics' IS&T division is up 28% from year-end 2010. 

Foolish wrap
Cybersecurity is a big issue, and one that could bring the U.S. to its knees if something isn't done, and soon. But it also presents an area of continued growth for savvy investors. We Fools like to invest for the long run, and when a company fills an essential need, there's a pretty good chance it will continue to provide attractive returns for its investors.

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