The cyber security market is growing at a rapid pace and is expected to continue its upward trajectory for a few more years. According to Markets and Markets, the worldwide cyber security market is projected to grow from $106.3 billion in 2015 to $170 billion in 2020. Amid the recent market volatility, many stocks in the cyber security sector have sold off considerably.
Given the strong growth of the industry, investors can benefit from the market correction by buying the stocks on the dip. Two of my favorite stocks from the sector are FireEye (FEYE, Financial) and Palo Alto Networks (PANW, Financial).
FireEye holds a leading position in the STAP market and around seven times the market shares of its next biggest rival in 2014. At present, rivalry has ramped up compared to 2014. Despite increasing competition, FireEye is still leading in the STAP arena.
The STAP market is facing continuous demand growth as cyber attacks are quickly becoming the standard. Due to this, advanced threat detection service is becoming more essential for companies and organizations in the new cyber security environment, making the company’s products highly useful.
However, the company has gradually been losing market share in the STAP market. This is to be anticipated, given the horde of rivals competing for a slice of it. Conversely, the company’s threat analytics platform, network products, cloud solutions, etc., are performing well and are still the most prevalent in the STAP market, which should permit FireEye to take advantage of huge growth prospects in the future.
Palo Alto Networks
The main thing to be kept in mind while investing is to invest in superior, well-known vendors that have prevailing customer relationships. Check Point Software Technologies (CHKP, Financial) claims a client list of more than 100,000, offering it sufficient opportunity to upsell clients to innovative, updated products to maintain its position in the market with respect to the industry’s changes. Check Point’s 10-year relationships have rewarded the company with a 52% operating cash flow margin, which it has mostly delivered to the stockholders via share repurchases.
Palo Alto Networks is another well-known vendor that has been reputable over the years in network firewalls. Palo Alto has substantial positive aspect in WildFire –Â its next generation firewall subscription that frequently acclimates to varying threat signatures. In 2015, the company’s WildFire customer list coarsely doubled over 2014 and has already touched 8,000.
Several firms are looking to figure out which vendors are not distinguished enough to deserve a distinct line item in their IT security budgets. This is profitable for both Palo Alto and Check Point.
Given the strong growth of the cyber security industry, investors can benefit by buying shares of Palo Alto Networks and FireEye on the pullback. Both companies are nicely positioned to benefit from the growing industry and should prove to be long-term winners for investors.