The No. 1 security risk on Americans' minds is no longer terrorism. In a recent survey by Unisys, hackers and viruses outranked terrorism as the nation's No. 1 security threat. Read on, and I'll explain the growing problem, how you can protect yourself, and the stocks I think are best-positioned to gain from battling ever-expanding cybersecurity risks.
The huge rise of cyber attacks
It's no surprise Americans are scared. In the past two years, we've seen:
- Sony's Playstation Network hacked, with 77 million accounts exposed -- credit card numbers included.
- Nasdaq's computer systems hacked.
- Hackers from Anonymous cripple the websites of the CIA, Visa, Mastercard, and Paypal.
- The world's first cyber weapons, Stuxnet and Flame.
- Malware Monday.
- 6.5 million user passwords hacked at LinkedIn, 1 million at Gawker, and 400,000 at Yahoo!.
- 600,000 Apple Macs hacked and controlled by the Flashback Trojan.
- Reuters, Dropbox, and the MLB hacked -- all in the last week.
- And a Wired magazine writer's digital life get completely destroyed last Friday
Our infrastructure is also under attack. Earlier this year, America's natural-gas pipelines were attacked by sophisticated spear-phishing attempts. The Head of the NSA said last month there has been a 17-fold increase in the number of computer attacks on the U.S. infrastructure in just the past three years.
Hackers aren't just going after big companies and infrastructure; Verizon's forensic analysis unit reported that 72% of the data breaches worldwide that it analyzed last year were at companies with 100 or fewer employees.
These aren't minor incidents. A separate survey by the Computing Technology Industry Association found that 76% of responding companies had had a cybersecurity incident within the past 12 months resulting in the loss of money, data, intellectual property, or the ability to conduct day-to-day business.
The really scary part, though, is thinking about all the attacks that go unnoticed or unreported. Shawn Henry, a former executive assistant director at the FBI's cyber division, recently said, "What the general public hears about -- stolen credit card numbers, somebody hacked LinkedIn -- that's the tip of the iceberg, the unclassified stuff."
Five simple tips to boost your cybersecurity
Many of the above hacks could have been prevented by some simple precautions.
- Use complicated passwords with numbers, symbols, uppercase letters, and lowercase letters. If it's available, use two-step authentication. It's alarming how many people use simple passwords such as "12345" or "password."
- Don't reuse the same password across multiple websites.
- Choose obscure answers to your password retrieval questions.
- Use antivirus software.
- Use BillGuard to monitor your credit card. BillGuard is a free monitor for your credit and debit cards (truly free, unlike freecreditreport.com, with its annoying commercials).
My top stock for cybersecurity
You can profit from growing cyber risks by investing in the companies whose business is protecting other companies. While Cisco (Nasdaq: CSCO) and Juniper Networks (Nasdaq: JNPR) are No. 1 and 2 in the network security market, my top pick is third by market share: Check Point Software Technologies (Nasdaq: CHKP). You might be familiar with Checkpoint's ZoneAlarm product for consumer. However, Checkpoint makes most of its money selling network security services to large companies. Checkpoint counts 98% of the Fortune 500 as customers and 100% of the Fortune 100.
The company uses a razor-and-blades model, selling standardized security appliances (the "razor") with customizable software add-ons that cost extra (the "blades"). This model has led to 16% annual revenue growth since its introduction three years ago. It has also been very profitable for the company, as net income has grown 22% annually over the same time period.
Check Point was founded by Gil Shwed, who now runs the company and owns a 12% stake, and Marius Nacht, who is the current vice chairman and has an 11% stake. Check Point has been repurchasing shares for years, and it recently announced a $1 billion share buyback. With an $11 billion market cap, nearly $800 million in free cash flow, no debt, and $3 billion in cash and bonds on its balance sheet, the company seems to be making good use of its capital.
There are other interesting stocks in the network security space, particularly Sourcefire (Nasdaq: FIRE) and Symantec (Nasdaq: SYMC). However, neither has the low valuation, balance sheet strength, or insider ownership that Check Point has.
Final Foolish thought
Cybersecurity will only become more important as the number of devices connected to the Internet continues to grow exponentially. The Motley Fool recently released a free report named "The Next Trillion-Dollar Revolution" that shows why this seismic shift will dwarf any other technological revolution seen before it. The report also reveals a stock we have singled out as the front runner of this trend. Thousands have already requested access to this report, and you can get your copy today by clicking here -- it's free.
