What happened

After rising modestly on Wednesday, tech stocks are giving back all their gains Thursday -- and more -- as the Nasdaq slumps more than 1% in late-morning trading. Cybersecurity stocks are getting hit particularly hard today, with shares of Fortinet (FTNT -1.01%) falling 1.1% as of 11:10 a.m. EST, Palo Alto Networks (PANW -0.47%) down 3.3%, and Zscaler (ZS -2.45%) leading the whole pack lower with a 4.9% loss.

And you can probably blame Piper Sandler for that.

So what

Tic-tac-toe, three in a row, Piper Sandler started off the New Year with a series of lowered price targets in the cyber sector this morning, reports ratings watcher TheFly. The banker cut Fortinet's price target 5% to $57 a share and made Palo 4% less "Alto" at $220. Piper reserved its deepest cut of all for Zscaler, trimming the cybersecurity firm's targeted valuation by 14%, to just $125 per share.  

As the analyst explained, cybersecurity shares have been broadly "de-risked" by their price declines last year. (That's certainly one way of putting it. Another way is to say that Fortinet and Palo Alto have lost 23% and 22% of their market capitalization, respectively, over the past year, while Zscaler has been simply destroyed -- down 57% in 52 weeks.) Piper does, however, believe demand for cybersecurity products will prove "resilient" in 2023.

As a result, Piper still sees a lot of room for these companies to grow in price in 2023. Both Zscaler and Fortinet are worth 18% more than they currently sell for, according to this analyst.

Now what

And yet not all of these stocks are equally great values. Even the prospect of a potential 18%, one-year profit isn't enough to entice Piper Sandler to actually recommend buying Fortinet or Zscaler, both of which stocks it rates only neutral. On the other hand, Piper thinks Palo Alto Networks looks especially undervalued right now and could gain as much as 62%. (And Piper thinks it's a buy.)

I agree with that call, by the way.

Each of these three stocks could post gains in 2023. But at a valuation of 60 times free cash flow (FCF), Zscaler still looks risky -- it could fail to achieve the aggressive 46.5% earnings growth rate that Wall Street projects for it. Fortinet has similar problems: a valuation of 31 times FCF and a 23% projected long-term growth rate.

Palo Alto Networks, on the other hand, despite having the biggest market capitalization of the bunch, could actually also be the biggest bargain. Valued at just 17.5 times trailing free cash flow, and with a projected growth rate north of 27%, Palo Alto stock sells for a price-to-free-cash flow-to-growth ratio of barely 0.6 -- well below my target valuation of a 1.0 ratio for growth at a reasonable price.

If you agree with Piper Sandler's thesis that cybersecurity stocks will bounce back in 2023, Palo Alto Networks is probably your best bet to profit from that.