Just a few days ago, prosecutors in New York issued
indictments in what is being described as the biggest computer
hacking scheme in U.S. history.
Paul Fishman, the U.S. attorney for New Jersey, was quoted by
Bloomberg describing a "worldwide scheme that targeted major
corporate networks, stole more than 160 million credit card
numbers and resulted in hundreds of millions of dollars in
Some of the companies affected include 7-Eleven, French
Carrefour SA (CA.PA)
Nasdaq OMX Group (Nasdaq: NDAQ)
. Eight hundred thousand bank accounts at
PNC Financial Services Group (
were targeted in the attack.
The thieves used stolen account information to withdraw money
from ATMs and make credit card purchases. Three of the affected
corporations sustained losses of more than $300 million, and the
indictment called the losses to individual consumers
The rise of the Internet over the past two decades has created
enormous opportunity for the sharing of information and the
creation of wealth around the world. Google, just a startup back
in 1998, now boasts a market cap over $294 billion, with revenue
of more than $50 billion last year. Tech billionaires like Bill
Gates and Mark Zuckerman have become household names.
But this rapid advance in technology has also given birth to a
new wave of crime. An estimated 10 million people are victims of
identity theft every year. Corporations and governments are
forced to spend billions of dollars every year to keep
proprietary information safe.
But here's the good news: There are now dozens of companies
that specialize in protecting data from thieves, both on the
individual and corporate level. As it turns out, this
fast-growing niche has made for some great investing
Let's take a look at some of the rising stars in this
increasingly vital market:
|Symantec (Nasdaq:SYMC )
Known for its popular Norton antivirus software, Symantec
is one of the leading providers of IT security, storage,
and systems management solutions. One of Symantec's key
competitive advantages is its Global Intelligence Network.
This network currently covers over 200 countries and allows
the company to analyze and provide security on a global
Symantec also benefits from high switching costs, which can
give a company a sustained competitive advantage. Once a
company has chosen a security platform they rarely change
it, because doing so creates downtime and inefficiencies as
systems are updated and higher employee training costs.
Symantec's shares have gained over 62% over the past year,
yet shares are still selling for a reasonable forward
price-to-earnings (P/E) ratio of 11. Symantec only recently
began paying a dividend, and although the yield is
currently a paltry 0.6%, the company has announced a
dividend target of 2.5%. This goal is easily within reach,
as Symantec generated $1.9 billion in free cash flow during
|CA Inc. (Nasdaq:CA )
Although probably better known as a provider of IT
mainframes, data centers and cloud computing, CA also
offers a number of security products under the "Minder"
logo. Products such as IdentityMinder, CloudMinder, and
DataMinder provide security solutions for both corporations
Compared with Symantec, CA's product line is more
diversified. Its core mainframe business boasts operating
margins averaging 60%. It also boasts a higher dividend of
3.4%. The dividend is sustained through a payout ratio of
48% and a consistent free cash flow of roughly $1.2 billion
over the past three years.
Shares are currently trading at valuations similar to those
of Symantec, with a forward P/E ratio of 11, and a
price-to-book (P/B) ratio of 2.5.
|LifeLock (NYSE:LOCK )
Investors interested in a more speculative investment may
want to check out LifeLock. LifeLock is a pure-play
security company that has only been publicly traded since
October 2012. With a market cap just under $1 billion, this
up-and-comer has had an impressive run so far: up 33% since
The company has been raising revenue at a steady clip, from
$162 million in 2010 to $276 million in 2012. From 2011 to
2012, free cash flow nearly doubled, from $22 million to
$41 million. The company has reported 32 quarters of
consecutive growth in both revenue and subscribers, and the
company's consumer retention rate is an impressive 87%.
However, investors' high hopes for LifeLock's continued
success have driven up share prices considerably. With a
forward P/E ratio of 28 and a P/B ratio over 4, it isn't
cheap. It should also be noted that the company does not
currently pay a dividend.
But for investors willing to shoulder the higher risk
inherent in elevated prices, LifeLock's enormous growth
potential and strong track record might make the higher
prices worth the gamble.
Risks to Consider:
The technology sector is a notoriously competitive field, and
sustained success within this industry requires consistent
innovation and cutting-edge products. Blue-chip giants
Microsoft (Nasdaq: MSFT)
Intel (Nasdaq: INTC)
are also big players in the field of IT security, and they have
billions of dollars at their disposal. Intel bought popular
Internet security provider McAfee in 2011.
Action to Take -->
Symantec and CA both provide solid investment opportunities for
investors at today's prices, with Symantec being the slightly
riskier of the two based on its shorter market and dividend
history as well as its lack of diversification relative to CA.
For more speculative investors, LifeLock has explosive growth
potential. Yet this opportunity for big gains should be weighed
against the company's short track record and lack of dividend
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.