- "Mad Money" host Jim Cramer inspects lesser-known cybersecurity stocks ForeScout, Okta and Zscaler to see if they can protect investors' portfolios.
- Cramer says some emerging stories still need time to play out, but finds one small-cap name worth buying.
With high-profile breaches rocking companies like Under Armour and Boeing, the cybersecurity business is not slowing down anytime soon, CNBC's Jim Cramer said on Friday.
But with top cybersecurity stocks like Proofpoint and Palo Alto Networks already up about 30 percent year to date, the "Mad Money" host wanted to seek out some under-the-radar names to see if they could be worth investors' time.
related investing news
"Tonight, I want to tell you about the newer, more under-the-radar, cybersecurity stocks that have been heating up of late, companies like ForeScout Technologies, Okta and Zscaler," Cramer said.
ForeScout is a $1.3 billion company focused on helping government agencies and businesses implement security measures for growing online networks. With more and more smart devices being rolled out, ForeScout helps prevent breaches across the whole network instead of installing software designed for each device.
Cramer liked that the company, which came public last October, already beat earnings estimates twice in a row and boasts contracts with the Department of Defense to secure data and improve the Pentagon's response time during cyberattacks.
Better yet, ForeScout's stock hasn't closed under $30 a share since the company did an early secondary offering, letting insiders and early investors ring the register after its initial public offering.
But Cramer had one but reservation: ForeScout's IPO lockup expires on April 25 and that tends to spur selling in the stock.
"If you want to buy this one, please, please, please wait for the lockup expiration to give you a better entry point," he suggested. "ForeScout reports again on May 10, so hopefully you'll have a couple of weeks to pick it up into weakness ahead of what I expect will be a very good quarter."
Okta came public about a year ago, but shares of the identity management and authentication play really started climbing at the start of 2018. This company is an expert in multi-factor authentication, or building multiple steps to a login to prevent breaches.
"The idea here is that Okta's cloud-based platform is taking tons of market share from existing authentication platforms," Cramer said, noting that some 81 percent of data breaches involve stolen or weak credentials.
Okta has also wowed investors with its earnings reports, issuing four better-than-expected quarters in a row and giving wildly strong guidance for the year ahead.
"I like this story," Cramer said. "My only hesitation here is Okta's recent run, but when you consider that this move has happened in the face of some major selling by the company's venture capital backers, I think it's absolutely worth putting on your shopping list so you can buy some into the next major marketwide pullback."
Cloud security provider Zscaler came public to a very enthusiastic market less than a month ago, pricing at $16, above the expected range, and closing at $33 on the first day of trading.
"Cybersecurity for the cloud that's infinitely scalable; no wonder there was so much excitement," Cramer quipped.
Shares of Zscaler have pulled back since then, but the company still has some promising prospects. It has won some major government authorizations and news broke recently that Cisco wanted to acquire it before its IPO.
Cramer's main issue was that the stock was still quite expensive relative to its peers, trading at 14 times next year's sales estimates, compared to ForeScout at 4 times sales and Okta at 9 times sales.
The "Mad Money" host couldn't deny Okta's 30-plus percent growth rate or Zscaler's 40-plus percent growth rate. But with their stocks trading at such high levels, he had concerns about their valuations compared to established players like FireEye, which only trades at 4 times sales.
"The bottom line? We've got some very exciting emerging cybersecurity stories here, but as intriguing as Okta and Zscaler may be, they still need to grow into their valuations," Cramer concluded. "You want a sexy, small-cap cybersecurity play? May I suggest you go with ForeScout?"
WATCH: Cramer's closer look at little-known cybersecurity plays
Questions for Cramer?
Call Cramer: 1-800-743-CNBC
Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine
Questions, comments, suggestions for the "Mad Money" website? email@example.com