Big Media was all over the recent settlement the federal government reached with Equifax Inc. (EFX).
It’s easy to see why. The credit reporting agency agreed to pay up to $700 million to settle claims brought by the Federal Trade Commission and most state attorneys general.
Here’s the thing. Nearly all of the dozens of stories about the Equifax deal focused on the size of the award and how consumers affected by the cyber intrusion can seek compensation for the time and money they had to spend.
In fact, Equifax set up a website to deal with many of the 147 million Americans whose sensitive data was put at risk after hackers breached the firm’s network.
And while I’m all for providing consumers with some money after all the hassles they went through, there’s one glaring omission from the media’s barrage.
It’s something we deal with her twice a week – how to make money from massive tech trends.
With that in mind, I’m going to give you the key details about a market-beating winner that is a great play on the red-hot cyber security market…
Digging Below the Headlines
Don’t get me wrong. I’m not making light of the Equifax victims. After all, my wife and I were affected by it, and for a time it was a big pain in the neck.
But as your tech analyst, it’s my job to follow red-hot trends that can make us a lot of money. To do that, I often have dig well beneath the headlines.
Cyber security clearly fits that bill. As you are reading this sentence, a hacker somewhere in the world is right this very moment trying to break into a computer system on Wall Street, the Pentagon or one of thousands of companies around the world.
I follow this field closely and even I can’t keep up with how busy it’s gotten. While many hacks hit small operations and go unreported, we’ve seen a number of high-profile breaches beyond Equifax.
We’re talking companies like eBay Inc. (EBAY), Yahoo and Marriott International Inc. (MAR). Just since 2014, those three firms and Equifax alone suffered cyber breaches affecting more than 649 million accounts. That’s nearly twice the nation’s population.
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A Fertile Field
Here’s just how fertile this field really is. Just days ago, news broke of a hack affecting 106 million people after federal agents arrested a former employee of Amazon Web Services.
She’s accused of breaking into the computer network for Capital One Financial Corp. (COF). Authorities believe she accessed bank data stored on servers hosted by Amazon.com Inc. (AMZN).
Now you know why forecasters at Cybersecurity Ventures predict that cyber-crime damages will hit $6 trillion annually by 2021. That’s double the figure from 2016.
No wonder MarketsandMarkets said sales for the cybersecurity sector last year were worth roughly $137.8 billion. By 2022, that figure will hit $231.9 billion, for a compound annual growth rate of 111%.
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Poised for a Strong Rebound
That’s why I continue to recommend the ETFMG Prime Cyber Security ETF (HACK). It holds some 55 stocks that cover the entire field. Debuting in November 2014, HACK was the first true cybersecurity-focused ETF and is poised for a strong rebound for 2019.
With this fund, we get tech and geographic diversity. HACK owns firms that provide hardware, software, and consulting services to defend against cybercrime.
Of those, roughly 55% cover systems software, while 14% are related to hardware. The rest are in such areas as aerospace and defense, IT services and application software.
It’s definitely focused on U.S. operators. But about 20% are based offshore in nations like Israel, Japan, and the United Kingdom.
We also get a nice balance of smaller, fast-growing firms that may have choppy action, along with those of larger, more stable leaders.
For instance, HACK holds several firms that cater to big corporations and government agencies. Think old guard members like Cisco Systems Inc. (CSCO) and Symantec Corp. (SYMC), which rank as the fund’s 1st and 4th largest holdings, respectively.
But HACK also holds some of the industry’s small, more aggressive growth firms. These are companies with breakout technology and huge growth prospects. Take a look:
Proofpoint Inc. (PFPT). Eric Hahn launched the firm in 2002 with little fanfare. But the former Chief Technology Officer (CTO) of Netscape, a firm that pioneered the field of web browsers, was really on to something. Proofpoint first focused on email threats, and has been steadily branching out over the years to cover so much more. Last March, Proofpoint won 14 gold and silver accolades in the 2019 Cybersecurity Excellence Awards. More than half of all Fortune 1000 firms use one or several of Proofpoint’s software tools.
Zix Corp. (ZIXI) offers one of the best ways to encrypt software applications, particularly including one of the most critical of all – email. This is an emerging sector that Allied Market Research says will grow by 14% a year through 2020, when it will be worth some $2.2 billion. The firm boast 20,000 clients. These include 1,200 hospitals, 30% of U.S. banks, seven divisions of the U.S. Treasury, as well as the Securities and Exchange Commission. It also protects clients from possible breaches from the mobile phones employees may use at work.
Mimecast Ltd. (MIME). Although Mimecast is largely flying under Wall Street’s radar screen, it already boasts some 15,000 global customers. The “mime” in Mimecast actually underscores the company’s main thrust. It stands for “Multi-Purpose Internet Mail Extensions.” The upshot: Mimecast helps protect users against phishing scams and other intrusions made through a company’s email system that resides in the cloud. It also offers real-time scanning of all web addresses within incoming and archived emails on every click. That shields users from both immediate and delayed attacks.
Palo Alto Networks Inc. (PANW) delivers a broad suite of next-gen firewalls and a range of security features for enterprises that need to protect their IT systems and data. The company bills itself as “An enterprise security platform…for all users on any device across any network.” And that is really invaluable in today’s tech landscape, especially at the enterprise level where companies often encourage their employs to use their own mobile devices, a process that cuts overhead but increases cyber risk.
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While it’s not immune to the periodic selloffs we’ve seen in the last couple of years, HACK has a history of beating the broader market.
Since stocks rebounded last Dec. 24, HACK is up nearly 31%. As such, it’s beaten the S&P 500 by about 15% during the period.
But it really pays to look at the long-term track record of this sterling ETF…
