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Time To Invest In Cybersecurity?

Thursday, 26 May 2011 | 6:47 PM ET

Cyber attacks have dominated the headlines of late, thanks to another breach of Sony's system and President Obama's recent proposal on the matter. So is now the time to invest in cybersecurity?

Alex Hamilton of EarlyBird Capital said he sees growth in the space, thanks to the government's establishment of a cyber czar and Obama's proposed cybersecurity legislation.

That legislation calls for the Department of Homeland Security to work with other nations to make the Internet secure. It also will work with the industry to identify critical-infrastructure operators and to prioritize the most important cyber threats and vulnerabilities.

Bullish on Cyber Stocks?
Alex Hamilton, EarlyBird Capital, shares his favorite cyber security names.

"The government is going to lead the way," Hamilton said. "They're going to drive the dollars, they're going to drive joint ventures, because at the end of the day it's a real national security problem."

While the defense budget is flat to down, Hamilton said this slice of the pie will grow double digits. He called it a nascent, fast-growing industry that is very fragmented.

So what's the trade?

Hamilton's top picks are CACI International , ManTech International, NCI , SAIC , and SRA International.

These are undervalued names, he noted, because they are misunderstood. He believes the valuations are compelling, and they have tremendous free cash flow.

While SRA International is being acquired, the other companies are also candidates for acquistion by bigger defense names, Hamilton said.

If he had to pick one winner, Hamilton would go with CACI because it has the top three cash flow yield in the space. "Follow the cash, you'll get your money back."


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Trader disclosure: On May 26, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Karabell owns (GOOG)l Karabell owns (AAPL); Terranova owns (XOM); Terranova owns (KSS); Terranova owns (CVI); Terranova owns (OXY); Terranova owns (TM); Terranova owns (BJ); Terranova owns (DIS); Terranova owns (PFE); Terranova owns (V); Terranova owns (HPQ); Terranova owns (FLX); Terranova owns (JPM); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (VRTS); Terranova is short (DELL); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman and Finerman's Firm own (CMI); Finerman's Firm owns (IBM); Finerman owns (C); FInerman owns (JPM); Finerman's Firm owns (JPM) leaps and (JPM); Finerman's Firm owns (TGT); Finerman owns (UNG); Finerman's Firm is short (IWM), (MDY), (SPY); FInermans firm is long S&P Puts, Russell 2000 Puts

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