Market Overview

Houston: We have a Problem. The Answer? Cybersecurity.


Make no mistake: China is out of control.

Now, closing a Houston consulate is not the answer, nor is punishing international students. But Trump's impulses are right. As are the impulses of many of the Democrats. Even left-leaning news sources like The Guardian get it. In a recent article, The Guardian quoted President Xi who said this in a rare meeting with business leaders this week in China.
"While the green hills last, there will be wood to burn," Xi said. "If we maintain our strategy … we will find opportunity in crisis and turbulence. The Chinese people will surely prevail over all difficulties and challenges ahead."

Xi Wiz. How do you spell "WTF?" in Mandarin?

For all its long-term thinking, China has completely blown a golden opportunity to lead, an opportunity Trump offered up on silver platter through his own "America First" isolationist posture. Let us survive Trump's missteps long enough to take advantage of Xi's. And let us invest in the most important defense we have against China's kleptomania: Cybersecurity.

Taking Stock of Cybersecurity Equities

Last week, more legislators are teaming up to stop Chinese theft. Four Republican senators announced the STRATEGIC Act (Strengthening Trade, Regional Alliances, Technology, and Economic and Geopolitical Initiatives Concerning China). Also, Senator Bob Menendez, the top Democrat on the Foreign Relations Committee, is also working on similar legislation.

According to Global Market Insights, the cybersecurity industry will grow at an average of 12% per year. The sector could reach $400 billion by 2026. The stay-at-home economy has rapidly pushed development in this space; fears over Chinese and Russian cybercriminals scouring for our data will only serve to push these stocks even broadly representing this space higher.

Okta Inc (NASDAQ: Okta) has been on a tear this year, gaining 73.6% in the first half. Fiscal Q1 revenue surged 46% year over year to $182.9 million driven by a 48% increase in subscription revenue. The stock has taken a recent dip. I would monitor this stock and expect to pounce on it before the next quarterly in late August.

Zscaler Inc (NASDAQ: ZS) is another hot stock in the cloud-based cybersecurity space. Management raised its full year fiscal revenue outlook to between 39% to 40%, or $422 million to $424 million. However, a recent partnership between cybersecurity stock CrowdStrike Holdings (NASDAQ: CRWD) and Zscaler competitor and privately-held Netskope might render its own partnership with CrowdStrike impotent.

In an unusual multiway partnership, Crowdstrike, OktaProofpoint Inc (NASDAQ: PFPT) and Netskope are working together to protect workspaces, at home and in the office, from cyber threats. All these four players are worth looking at long-term. You can add Cisco Systems, Inc. (NASDAQ: CSCO) and Palo Alto Networks Inc (NYSE: PANW) as well, the latter of which just beat the former in earnings. Despite being the runner-up, Cisco is undervalued and a buy.

But I like Fortinet Inc (NASDAQ: FTNT) the best. While it took the number three spot with about $577 million in network security Q1 revenue, Fortinet's stock is up 25%, an impressive incline but not as compared to other stocks in the space. A recent acquisition of privately held OPAQ is part and parcel of this Fortinet’s move towards the cloud where, in a world of millions of hand-held devices, the future of cybersecurity lies (there's more money in securing iPhones than Fort Knox.)

That said, the Chinese love gold, so let's make sure that perimeter is also secure.

The author has a Buy rating on Fortinet as of June 24


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Posted-In: China contributor CybersecurityGlobal Opinion Markets