Stocks in Cyber Security Set to Take Off: Analyst

Stocks See Classic Risk-On, Reflation Trade

The recent wave of cyberattacks targeting major U.S. banks has cast doubt onto the effectiveness of security infrastructure within the online banking sector.

Though worrisome, there is a potential beneficiary set to gain from this threat, explains one analyst: the cyber security industry.

"Companies have no choice but to spend on security," Daniel Ives, senior analyst at BR Capital Markets, told CNBC.

This is good news for stock in cyber security firms such as Checkpoint Systems, Fortinet, and Palo Alto Networks — three pure play firms that comprise the "small subset of companies that are going to benefit from these trends," according to Ives.

These trends refer to surges in cyberattacksthat have begun to plague online companies and are only expected to gain ground as methods for Internet hacking increase in sophistication.

Dating back to Sept. 19, some of the most prominent U.S. banks have fallen victim to cyberattacks targeting their online services. These include U.S. Bank, Wells Fargo, Citigroup, Bank of America/Merrill Lynch, and JPMorgan Chase.

The security breaches have been characterized as denial-of-service attacks aimed at artificially boosting traffic on these websites. Although they have not resulted in theft of personal data or information, they have succeeded in causing damaging blackouts and extended delays for online bankers.

An Iranian hacker group named "Izz ad-Din al-Quassam Cyber Fighters" has claimed responsibility for all of these attacks. Its motives are unknown, but speculation ranges from a response to economic sanctions imposed by the U.S. and other European countries, to backlash from a YouTube video portraying the Prophet Muhammad in a negative light.

Regardless of the nature of the attacks, Ives is adamant that companies will begin to enlist the help of cyber security firms to combat them, projecting a significant jump in the value of these stocks.

Noting that stock prices have not yet experienced this boost, he urged investors to pay attention to surveys conducted by FBR Capital Markets indicating that security is emerging as a top priority for online companies in 2013.

Despite a "choppy spending environment" for information technology within corporate circles, Ives insists that a movement to employ the services of pure play firms like Checkpoint is imminent and inevitable, due to the distinct advantage in technological sophistication these pure play firms have over company-based IT teams.

All this bodes extremely well for stocks in the cyber security industry, believes Ives.

"Cyber security is a big area in technology," he said, "the threats are not going to abate."

—By's John Healey

Additional News: Cyberattacks 'Huge Security Issue' for the US: PNC CEO

Additional Views: Threat of 'Spectacular' Cyberattack Looms: Official


CNBC Data Pages:


FBR Capital Markets is a market maker or liquidity provider for the securities of the following companies: Checkpoint Systems, Fortinet, and Palo Alto Networks.