Equifax's Data Breach Should Prop Up These Cybersecurity Stocks

Betting on cybersecurity stocks has been a profitable trade in 2017. Thanks to the number of high-profile hacking-related headlines that have hit retailers and corporations, both the First Trust Nasdaq Cybersecurity ETF (CIBR) and ETFMG Prime Cyber Security ETF (HACK) — up 11% and 14%, respectively -- have padded many portfolios.

And this was before the most recent breach involving credit reporting agency Equifax Inc. (EFX), where 143 million consumer records were exposed to the breach on September 7. The company last week admitted that it failed to fix a vulnerability called “Apache Struts.” And here’s the thing: This vulnerability, which was exploited by the attackers, was first discovered in March — a good six months before the breach took place.

Why this liability wasn’t fixed? Only the company knows. But given that some of Equifax’s customers are mainly financial institutions such as mortgage lenders, banks and credit card issuers, which supply Equifax with consumer transaction records, it’s likely your problem too.

And if you’re among those whose records were stolen, this means you’re now vulnerable to not only phishing attacks, but also possible unauthorized new credit card accounts, which can damage your credit history.

As expected, heads at Equifax have begun to roll as various class-action suits are being formed. On Friday the company said two technology and security executives, Susan Mauldin and David Webb were leaving the company "effective immediately.” According to Reuters, the company also announced that it has brought on FireEye (FEYE) threat intelligence subsidiary Mandiant, to investigate the breach.

Cybersecurity stocks like FireEye, which last week soared 8%, has skyrocketed 46% year to date, crushing both the CIBR and HACK. And this latest incident may propel FEYE higher. FireEye, which uses malware sandboxing technology, used for detecting advanced security threats before they find their way into a network, has enjoyed strong growth. Its earnings are projected to grow 80% this year, while averaging out to almost 20% in the next five years.

For similar reasons, investors should look to data security specialist Barracuda Networks (CUDA), which last week rose more modestly at 1.74%. CUDA stock, which has risen just 14.5% year to date, could move higher in the quarters ahead. Its hybrid cloud solutions gives it an added advantage over, say, Cisco (CSCO) and Fortinet (FTNT) because it can optimize local hardware, while also helping customers to better address security threats, manage network performance, and protect and store their data.

Corporations are expected to contribute to an almost 40% jump. Cybersecurity threat prevention could soon see spending of up to $101.6 billion on cybersecurity software, services, and hardware, according to research by the International Data Corporation.

“Security has become heavily scrutinized by boards of directors demanding that security budgets are used wisely and solutions operate at peak efficiency,” said Sean Pike, IDC’s vice president of security products.

And because of this latest breach to Equifax, businesses and consumers likely won’t wait to be victimized, especially given the ever-connected world in which we live. As consumers and business look for ways to better protect themselves, investors can also use this opportunity to seek better ways to profit.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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