So You Want To Play The Cybersecurity Sector Right Now...
Yet another cybersecurity company entered the public sector on Friday. Rapid7 — which boasts more than 3,900 customers across 90 countries — provides IT security data and analytics software and services to help organization reduce the risk of a breach, detect and respond to attacks and building effective IT security programs.
Experts are saying its closest comparable peer is CyberArk Software Ltd (NASDAQ: CYBR). In the first half hour of trading, Rapid7 Inc (NASDAQ: RPD) shares were up more than 60 percent from its IPO price of $16.
To conclude our series about cybersecurity, we asked a few experts for a few ideas on how investors should approach the sector.
Chris Ciaccia, technology editor for TheStreet.com, said that cybersecurity has really caught the attention of Wall Street investors in recent years.
We are experiencing a boom in cybersecurity.
Leaders in the Sector
Ciaccia named Palo Alto Networks Inc (NYSE: PANW) and FireEye Inc (NASDAQ: FEYE) as leaders in the sector. He noted they are likely safe to not day trade as they will probably be around for the next 5 -10 years.
“You’ve seen growth rates on these companies approaching 70-80% and in a market that’s probably going to be close to $100 billion by 2017.” He said.
Yet, Ciaccia noted the possibility of an acquisition by a big IT enterprise.
Andrew Chanin echoed this point as well. Chanin is the CEO of PureFunds, which runs the PureFunds ISE Cyber Security ETF (NYSE: HACK).
“A lot of technology and defense companies want to increase their footprint in cybersecurity because a lot of companies believe that could be a big driver in the future, but we haven't seen that major acquisition yet,” Chanin said.
Of course, cybersecurity is an ever-changing sector, so the most successful companies will be the ones that can keep up with the pace of hackers. They must constantly develop new techniques so their technology doesn’t grow old and obsolete.
A Basket Approach
Because of the evolutionary nature of the sector, Chanin suggests a more diversified approach as picking the exact right company could be difficult.
“Being able to get exposure to multiple companies in this already-volatile space could help minimize some of your volatility and company risk. The basket approach — the ETF approach — is one that is very appealing to many investors.” Chahin told us.
Chanin also noted that although cybersecurity is a tech play, it is a very unique one.
“People call it a tech play, but it could be a very different kind of correlated asset class just because it is kind of a staple.” He said, “Some solutions are kind of pay as you go like an electric bill, so it's kind of like a utility.”
He added that cybersecurity has qualities similar to many different sectors, making it an interesting thematic growth play for your portfolio, or for a non-correlated investment.
Wait on it?
Gary Kaltbaum, President of Kaltbaum Capital Management spoke on Benzinga’s #PreMarket Prep show about cybersecurity last week.
Kaltbaum agreed the sector is here to stay.
“You can expect more hacking going on. I don’t think this is the beginning of it. It’s going to go on for a very long time.” He said.
While he doesn’t have much in the sector, Kaltbaum admitted he was bummed he doesn’t own Palo Alto Networks, as it has stood out as a big leader.
Yet, he speculated right now might not be the exact right time to jump into the sector. He added that other names that had been acting well seemed to have lost their leadership.
“CyberArk had a pretty good move, but now is starting to break down. So, I’m not in the camp of owning cybersecurity this second, but if they start to show … being defensive on the downside, better action I’ll jump all over them,” Kaltbaum said. “Some of them have very strong earnings and revenue growth, but I think right now they’re on their heels a little bit.”
If you’re interested in reading more about the Cybersecurity sector, check out this article.
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