If you haven't heard about the
Target data breach
by now, here is the short version: a massive identity theft
operation was perpetrated against retail-giant
and involves the financial information of as many as 70 million
If your data was stolen, the risk of having this information
used to steal your money is very real.
Data security breaches like the Target data breach aren't
altogether uncommon. Sadly, these kinds of events are becoming
more commonplace in our digitally connected society.
The process, while technically complicated, is pretty simple
to understand on a basic level.
A large retail company or payment processing company uses
digital systems to store and process financial information.
Hackers gain access to this information and then sell it on the
black market. The criminals who purchase this information then
use it to make unauthorized purchases, often to buy Visa (
) or Mastercard (
) pre-paid debit cards that they can spend anywhere they
How You Can Profit from the Target Data Breach
The market for data security services is booming. After
several high profile data security breaches involving big names
like Sony (
), Heartland Payment Systems (
) and T.J. Maxx (TJX), retailers large and small are spending
heavily on data security.
Retailers will turn to hardware companies like Verifone (PAY)
for the latest technology in secure point-of-sale systems, or
POS. One of the prevailing theories for how the Target data
breach was conducted is that malware infiltrated the retail
giant's POS system and stole the credit and debit card data as
customers swiped at the register.
Since news of the Target data breach, Verifone stock is up
Believe it or not,
is also a likely winner here. Amazon's payment processing
services and order fulfillment services look more and more
attractive to other retailers…even some of Amazon's
I recently paid for an order placed on an Amazon competitor's
website with my Amazon account. I couldn't believe it at the time
but, when I thought about it, I realized that it is a
cost-effective way for the competitor to eliminate its risk of
data theft and push it onto Amazon.
Many individuals and families turn to LifeLock (LOCK) for
peace of mind. LifeLock's model is different than those of the
data security companies. LifeLock actively monitors your accounts
for identity theft and, if it does occur, automatically
reimburses you for up to $1,000,000 in losses and goes after the
retailer or criminal directly. I am a customer of LifeLock
Shares of LifeLock are up more than 27% since news of the
Target data breach.
The big losers in this kind of situation are the retailers
Generally, victims of identify theft associated from a data
breach of this kind are reimbursed by their financial institution
directly. Then the financial institution goes after the retailer
Financial institutions incur significant costs associated with
replacing cards for compromised accounts and also require a lot
of labor hours to process the mess. The cards themselves usually
cost around $10 a piece, plus the labor and systems costs
associated with changing account numbers.
Banks and retailers have long disagreed about who should pay
the costs of reissuing cards and account numbers.
Banks say the retailer should be responsible for all costs
associated with the breach. Retailers say banks should bear the
responsibility because they failed to use technology available to
keep accounts safe.
Some financial institutions, like Wells Fargo (WFC) have opted
to replace cards only as issues arise. Others - like J.P. Morgan
Chase (JPM) - have opted to replace any card believed to be
involved in the Target data breach.
This is expected to be a major topic of discussion when the
Target CFO testifies before a U.S. Senate committee on February
The Bottom Line
In a cyber security breach involving massive retailers there
are clear winners and losers.
From a stock perspective, you can expect shares of the
retailer in question to take a major hit. Target shares are down
8% since announcing the breach on December 19.
You can also expect shares of data security companies to get a
boost. Retailers that don't protect their data well will require
the services of these companies and companies that already use
their services will need them even more.
The ugly reality is that cyber crime and data theft are big
But so is preventing these crimes from happening in the first
place. Owning stocks of companies involved in this kind of
security is a good (and legal!) way to profit from these kinds of
And you can be certain we'll see more like the Target data
breach in the future.
The One Stock to Own in 2014 - The Year Mobile Takes
On Dec. 31, something incredible happened. For the first time
in history, the majority of Internet traffic originated from NOT
from PCs or desktops - but from mobile devices including
smartphones and tablets. We're never going back. Mobile is taking
over. And even though the biggest player in mobile, Apple, is
selling over 200 million iPhones this year alone… here at Wyatt
Research, we're recommending the one company no one is taking
about. The one reaping massive profits each time a new Apple or
Samsung smartphone is activated. In fact, as mobile data usage
explodes in the year ahead, its stock is set to soar! Shares are
already on the move. So, before this stock moves any higher, read
our latest report for all the details:
Click here for the full story