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The 3 Best Stocks to Invest in Cybersecurity

By Sam Mattera – May 4, 2015 at 9:42AM

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These three companies are well-positioned to benefit from the cybersecurity awareness movement.

Source: Intel Free Press via Flickr

Unfortunately, cyber crime isn't going away. Hacking scandals have become an almost regular occurrence for public companies, devastating the shares of those unfortunate enough to find themselves the victims of a major data breach.

Investors looking to gain exposure to the cybersecurity market have a wide variety of options to choose from, but a few stocks stand out among the rest. Below are three of the best stocks in the space.

Symantec is a reliable cash generator
Among cybersecurity stocks, Symantec (NLOK -2.82%), the owner of Norton Antivirus, is perhaps the most reliable cash generator. Last quarter, it generated $358 million from operating activities, much of which it returns to shareholders in the form of dividends and share repurchases. At current levels, the company yields a little more than 2%, and it approved a $1 billion share repurchase program in February (about 6% of its current market cap).

Symantec focuses primarily on endpoint security -- solutions installed on particular devices (PCs, mobile devices, etc.) designed to protect them from malicious activity. It's a well-established business and a staple for many IT departments.

Symantec will become more of a pure play security business when it completes its planned split later this year: the company will spin off its Information Management business, Veritas, to shareholders. Last quarter, about 41% of Symantec's revenue came from this business, which is wholly unrelated to security. The split should benefit shareholders, creating two more focused businesses. Those interested only in the security business can sell their shares of Veritas.

FireEye provides a novel service with rapid growth
While a reliable cash cow, Symantec doesn't offer much growth. Last month management announced that its security business would enjoy revenue growth of only 0-2% for the current fiscal year. Investors looking for stronger growth could consider a more speculative stock like FireEye (MNDT). Whereas FireEye isn't yet profitable and is burning through cash, the company is dominating the new cybersecurity market it helped pioneer and has generated impressive revenue growth along the way.

FireEye's services focus on advanced persistent threats (APT). In contrast to more traditional signature-based approaches -- the sort employed by Symantec -- FireEye tests potentially malicious software on its network of virtual machines in real time. This allows it to spot zero-day exploits -- exploits that programmers have had exactly zero days to solve.

Last year, FireEye's revenue rose a stellar 163% on an annual basis, and if its guidance proves accurate, it will rise another 42% to 46% this year. It's difficult to gauge when FireEye's growth will slow, but for more risk tolerant investors seeking a high-growth security stock, it's among the best.

Check Point Software moves into new areas
Check Point Software
(CHKP -0.86%) is somewhere in between Symantec and FireEye. It's a profitable company, but trading with a trailing price-to-earnings ratio in the mid 20s, it's much more aggressively valued than Symantec. It doesn't pay a dividend like Symantec, but the company is growing much more rapidly. In fact, when Check Point reported earnings late last month, it noted that its revenue rose 9% on an annual basis.

Check Point is primarily an Internet security company, with a focus on network firewalls, but also offers other sorts of products (VPNs, intrusion prevention, antivirus, among others) and has been expanding into other areas. So far this year, the company has made two major acquisitions -- Hyperwise and Lacoon Mobile Security. Hyperwise is aimed at stopping zero-day exploits, whereas Lacoon is beefing up Check Point's offerings for mobile devices. Check Point is also targeting APTs, but using a different method than FireEye: rather than run malicious files in a virtual environment, Check Point offers what's called Threat Extraction -- the ability to remove malicious code from seemingly innocuous files.

Check Point has been on a solid run, with shares rising nearly 30% in the last 12 months, but it if continues to execute, it could offer further upside.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Check Point Software Technologies, and FireEye. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Check Point Software Technologies Ltd. Stock Quote
Check Point Software Technologies Ltd.
CHKP
$111.40 (-0.86%) $0.97
NortonLifeLock Inc. Stock Quote
NortonLifeLock Inc.
NLOK
$20.67 (-2.82%) $0.60
Mandiant, Inc. Stock Quote
Mandiant, Inc.
MNDT
Apple Inc. Stock Quote
Apple Inc.
AAPL
$150.43 (-1.51%) $-2.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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