2021 has proven a tumultuous year for cybersecurity contractors after the May attack on the Colonial Pipeline disrupted fuel supplies and sparked President Biden’s “Executive Order on Improving the Nation’s Cybersecurity.” The order established new directives for information sharing and revamps efforts to future-proof the nation's cybersecurity efforts.
Recent accusations from the U.S. and NATO allies against Chinese government-linked hackers in connection with the February attack on the Microsoft (MSFT, Financial) Exchange servers have once again thrust cybersecurity fears into the spotlight. China has refuted all claims that have been made, but has also refrained from publicly announcing any retaliatory plans. As tensions between the two economic giants remain high, several U.S. cybersecurity contractors with government ties could be ideally positioned to benefit from the shifting landscape.
Leidos Holdings
Leidos Holdings Inc. (LDOS, Financial) is engaged in scientific, engineering, system integration, technical services and solutions to various government entities and highly regulated industries, including the U.S. Department of Defense, Intelligence Community and the British Ministry of Defense. Areas of focus include intelligence and surveillance, cybersecurity, complex logistics, energy and health.
According to Leidos’ most recent article on their site, the White House has issued a request for $750 million in funding for cybersecurity initiatives, which should be good news for contractors. However, the article continued to explain that the directives laid out in Biden’s executive order will likely require much more funding that will need to be acquired. The company believes it is positioned quite well to aid in the changes that governmental agencies will be required to make in the coming months.
On July 20, Leidos’ stock was trading at $105.07 per share with a market cap of $14.86 billion. According to the GF Value Line, the stock is trading at a fair value ranking.
Top gurus invested in Leidos include Sarah Ketterer (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Jim Simons (Trades, Portfolio).
Northrop Grumman
Northrop Grumman Corp. (NOC, Financial) is a defense contractor that is diversified across short-cycle and long-cycle businesses. The firm's segments include aeronautics, mission systems, defense services and space systems. The company's aerospace segment creates the fuselage for the massive F-35 program and produces various piloted and autonomous flight systems. Mission systems create a variety of sensors and processors for defense hardware. The defense systems segment is a mix between a long-range missile manufacturer and a defense IT service provider.
The company landed two separate contracts with the U.S. Air Force for cyber defense and coordination. These two contracts, valued at $24 million and over $54 million, established the company as a key player for government-driven cybersecurity contracts. The second of the two contracts is set to conclude this year, leaving the company ready and waiting to assist in any cybersecurity updates that previous partners may require.
As of July 20, the stock was valued at $362 per share with a market cap of $58.19 billion. The GF Value Line shows the shares trading at fair value after a sharp rise in price that started in March.
Ken Fisher (Trades, Portfolio) boosted his position in the company in the first quarter and top gurus include Simons, Yacktman Asset Management (Trades, Portfolio), Yacktman Fund (Trades, Portfolio) and the Yacktman Focused Fund (Trades, Portfolio).
Booz Allen Hamilton
Booz Allen Hamilton Holding Corp. (BAH, Financial) is a provider of management consulting services to the U.S. government. Other services offered include technology, such as cloud computing and cybersecurity consulting, and engineering consulting. The consulting services are focused on defense, intelligence and civil markets. In addition to the U.S. government, Booz Allen Hamilton provides its management and technology consulting services to large corporations, institutions and nonprofit organizations. The company assists clients in long-term engagements around the globe.
The company prides itself in being the only of its kind to hold all three of the U.S. government’s elite cybersecurity accreditations. These include incident response assistance, vulnerability assessment services and adaptive cybersecurity services. According to a report from Govini, the company received well over $2 billion in government funding for cyber defense, resilience and threat analytics between 2011 and 2016 and government spending is expected to continue to grow through this year.
The stock was trading at $89.55 per share with a market cap of $12.13 billion on July 20. The shares are currently trading at a fair value rating according to the GF Value Line, but could be modestly overvalued soon as share prices continue to rise.
Simons, Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) make up the top guru owners.
IBM
International Business Machines Corp. (IBM, Financial) looks to be a part of every aspect of an enterprise's IT needs. The company primarily sells infrastructure services (37% of revenue), software (29% of revenue), IT services (23% of revenue) and hardware (8% of revenue). IBM operates in 175 countries and employs approximately 350,000 people. The company has a robust roster of 80,000 business partners to service 5,200 clients, which includes 95% of all Fortune 500 companies.
IBM’s cybersecurity offerings include data encryption and protection across cloud storage services and enhanced simplification through automation. They also offer preemptive services that help to identify top threats and remediate threats before they become a problem.
On July 20, the stock was trading at $140.37 per share with a market cap of $124.84 billion. A fair value rating is assigned to the company by the GF Value Line.
Top gurus with positions in IBM include Pioneer Investments (Trades, Portfolio), Simons, Grantham, Greenblatt and Dodge & Cox.
General Dynamics
General Dynamics Corp. (GD, Financial) is a long-cycle defense contractor and business jet manufacturer. The firm's segments include aerospace, combat systems, marine, information technology and mission systems. The information technology business primarily serves the government market. The mission systems segment focuses on products that provide command, control, computers, intelligence, surveillance and reconnaissance capabilities to the military.
The company’s cybersecurity operations cover the full information technology lifecycle. Products range from voice encryption hardware to security threat analysis software. The company recently highlighted its joint effort with the Department of State throughout the pandemic to help manage global supply chains.
As of July 20, the stock was trading at $190.29 per share with a market cap of $53.78 billion. According to the GF Value Line, the stock is trading at a fair value rating.
Barrow, Hanley, Mewhinney & Strauss, Primecap Management, Bill Nygren (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio) maintain the top guru positions in General Dynamics (GD, Financial).
