2 Cybersecurity Stocks Poised to Grow - Analyst Blog

2014 is expected to be an eventful year for Cybersecurity software providers as enterprises aim to tighten their security loopholes amid growing cyber attacks. According to Intel's INTC McAfee lab cyber attacks will accelerate much faster in 2014 as compared to 2013 and 2012.

The data breach at Target that affected 110 million people during the holiday season of 2013 reflects this alarming trend. According to EMC Corp's EMC RSA division, besides Target and Neiman Marcus Group Ltd, data of at least 41 retail companies were hacked and debit & credit-card data of approximately 50K customers were stolen during the same period.

We believe that growing cyber attacks will boost demand for new products from enterprises, which will drive enterprise spending. Per a joint report from IDC and the National University of Singapore NUS globally enterprises are expected to spend approximately $500.0 billion to fight malware and data breaches in 2014.

Growing Threats

The mainstream adoption of cloud computing, Internet of things and Bring Your Own Device (BYOD) is expected to aggravate vulnerability of IT systems. According to McAfee cyber-criminals will increasingly target Google's GOOG Android based mobile devices through malware.

McAfee noted that hackers will be aiming to take advantage of security loopholes in mobile browsers and mobile devices using near-field communication (NFC) technology. They will also target HTML-5 based applications on personal computers and mobile devices. Social networks such as Facebook, Twitter, LinkedIn, Instagram are also expected to face increasing cyber attacks by the end of 2014.

Higher Spending

Despite being blamed for its sluggish actions, the U.S. federal government's Cybersecurity funding is one of the largest in the world. In the 2014 federal budget, the U.S. Cyber Command received $447.0 million, more than double its 2013 funding of $191.0 million.

Per IDC Retail Insights, spending on e-security in the U.S. will increase 5.7% year over year to $720.3 million in 2014. Retailers are expected to spend on new cybersecurity measures to tighten loopholes in their system, to regain customer confidence in 2014. This includes adoption of chip-based credit cards (Target to spend $100.0 million) as well as advanced cyber attack detection systems that use Big Data analytics.

According to Gartner, Big Data analytics is expected to play a significant role in preventing cyber attacks as it traces data breaches at a much faster pace than traditional security software. Gartner expects 25.0% of enterprises to adopt Big Data analytics for this purpose by 2016.

2 Stocks to Pick

Here are 2 stocks, which we expect to benefit most from increasing enterprise spending on Cybersecurity:

Akamai Technologies Inc AKAM - The increasing adoption of cloud and mobile computing are expected to drive demand for Akamai's performance & security solutions (44.0% of 2013 revenues) going forward. The acquisition of Prolexic (develops software that prevents DDoS attacks) expands its product offerings for non-web applications as well as enterprise data centers.

Over the last 12 months, the shares of this Zacks Rank #2 (Buy) stock has increased 71.7%. Akamai's earnings per share are expected to increase 14.5% over the next five years.

FireEye Inc FEYE – FireEye's strong product portfolio that caters to threat prevention, central management and forensic analysis is a significant growth driver. The company acquired Mandiant, which strengthened its position as an end-to-end security software provider. FireEye's revenues jumped 94.0% in 2013.

Over the last 12 months, the shares of this Zacks Rank #3 (Hold) stock has increased 98.6%. FireEye's earnings per share are expected to increase 18.3% over the next five years.

Conclusion

Advanced security solutions are not the only answer to the Cybersecurity problem. Vigilance and awareness are equally important. We believe that solutions that can tackle security issues on a real time basis will lead the market over the long term.