For the second consecutive year, the PureFunds ISE Cyber Security ETF HACK lagged the S&P 500 in 2016. However, a number of market analysts believe that the two-year consolidation period for cybersecurity stocks may have finally come to an end.
Notable short seller and Citron Research founder Andrew Left recently outlined his bullish case for Palo Alto Networks Inc PANW in 2017. Left believes Palo Alto’s revenue mix, which is more than 60 percent subscription revenue, is much more valuable than companies with a majority of revenue coming from installations.
In an interview with CNBC, Left said the biggest criticism of Palo Alto in recent years has been its loose spending habits, but he believes the company was doing what it needed to do to establish a dominant market position.
“They’ve been able to capture I think 85 percent of Fortune 100 companies and there’s a network effect revolved around cybersecurity. The more customers you have, this could become a ‘winner take most’ business,” Left explained.
Left also mentioned high competitor barrier to entry, rising margins and an imminent upgrade cycle as reasons to like the stock.
Overall, Left said the cybersecurity business is one of the best secular growth stories in the technology sector.
Sean Udall of Quantum Trading Strategies recently echoed Left’s bullish sentiment on a recent episode of PreMarket Prep.
Udall named FireEye Inc FEYE his top pick in cybersecurity but says traders can’t go wrong in the space in the near term.
“Really, this would probably be for about six quarters. I think you can get four to six good quarters out of the whole cybersecurity space,” Udall said.
Udall is not as big of a fan of Palo Alto, but concedes that the stock is a Buy at current levels.
“I will not hold that a whole year though, but I think Palo Alto is going to have a good move and that’s a stock I was saying was a short, I think [will move] roughly 50 or 60 points higher,” he explained.
The HACK ETF is off to a great start so far in 2017, up nearly 4 percent in the first five trading days of the year.
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