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9 Cybersecurity Stocks to Consider Now

By Christopher Witrak

NEW YORK ( Minyanville) -- Earlier this month, Americans were alarmed to learn that hackers had stolen nearly 1.5 million credit card numbers from Global Payments (GPN), an Atlanta, Georgia-based payment processor and former Visa (V) partner.

Such stories have appeared in the news with increasing frequency, and it's not just large corporations being targeted by cyber criminals. In fact, small organizations, such as physicians' offices, saw the greatest number of data breaches last year. In a separate investigation, Verizon's (VZ) annual Data Break Investigations Report examined 855 account breaches from around the globe and found that criminals compromised 174 million records in 2011.

For investors, these stories point to an obvious trend: Cybersecurity stocks, already hot, are likely to continue gaining heat. Global spending on cybersecurity products and services is expected to exceed $71 billion by 2014, according to Gartner (IT), an information technology research and advisory firm.

Last year, Sean Udall, Minyanville contributor and author of the TechStrat Report newsletter, recommended 10 stocks to watch in the burgeoning commercial cybersecurity industry. (See Cyber Defense: Investing in the Modern Battlefield.)

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More than six months later, he still believes some of these stocks represent compelling value. Others in the group may still be overvalued, though less so than six months ago. (Note: Blue Coat, a name from last year's story, was bought out by private equity firm Thoma Bravo LLC.)

Below, he explores some of the pros and cons of the various names in the group.

Check Point Software Technologies (CHKP)

July 18, 2011 April 17, 2012
Price: $61.17 Price: $64.33
Annual Revenue: 1.173B Annual Revenue: 1.25B
EPS Growth: 26.53% EPS Growth: 18.18%
Sales Growth (Quarterly): 15.15% Sales growth (Quarterly): 12%
5 Year Average Sales Growth: 11.50% 5 Year Average Sales Growth: 12%
P/E: 26.03 P/E: 18.29

Check Point, the inventor of FireWall-1 and Stateful inspection technology, two landmark innovations, is known for customized security solutions designed to protect consumers from hackers, spyware and identity theft. According to the company's website, its clients "include tens of thousands of organizations of all sizes, including all Fortune and Global 100 companies."

"I'll stand by my prior views that Check Point is one of the better growth companies in the space, one of the cleaner names. The stock is one of those that is doing a good job growing into its slightly higher valuation. I'd prefer to pick it up 10% lower (or more), but in my view this is a core name in the space," says Udall.

The stock has had its strongest early-year run since 2004, but Udall may get his wish for a discount as Bloomberg recently reported that the world's second largest security company may run into some headwinds as larger corporations, such as Dell (DELL) and Cisco (CSCO), mentioned below, seek to take a larger portion of the cybersecurity market share. The stock has gained 1% since the beginning of the year.

The company is growing and has made several acquisitions over the past several years. The Tel Aviv-based firm employs approximately 2,200 people, and its most recent purchase in October of last year was Dynasec, which provides governance, risk management and compliance solutions. The company also purchased Nokia's (NOK) security appliance business last year, and two years ago acquired FaceTime Communications' application database, which added security controls for over 50,000 Web 2.0 widgets and more than 4,500 Internet applications to their company's portfolio.

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