Data Breach Specter: 3 Cyber Security Stocks to Benefit

The latest victim in the series of data breaches in the U.S. is home improvement chain The Home Depot, Inc. (HD), which suspects massive debit and credit card data theft of its customers. With over 2,200 stores in the U.S., the data breach could compromise vital information about customers and sensitive security details. The purported security breach is perceived to have a graver impact than that of discount store retailer Target Corp. (TGT).

Target’s security breach put at stake the credit card details of about 40 million customers by stealing information from the magnetic strip on the back of credit and debit cards through point-of-sale systems. Similar cyber attacks were also reported in 63 of Barnes & Noble, Inc.’s (BKS) 700 stores, forcing the retail chain to switch all 7,000 keypads in its stores.

So is it time now for retailers to consider investing heavily on cyber security measures like other industries such as banking and defense? Before we look into the security threat issues, let us examine how various industries are susceptible to such cyber espionage.

Cyber Security Threat in Other Industries

Last month, the country’s largest bank, JPMorgan Chase & Co. (JPM) -- and at least four other banks whose names were not disclosed -- were victims of cyber attacks, siphoning sensitive data regarding savings account details. The attack was reportedly executed by hackers from Russia or other Eastern European countries in possible retaliation of economic sanctions imposed on Russia. The cyber infiltration seemed to be politically influenced as no financial losses were reported from it. (Read: Banks Face Cyber Attack - Russian Motives at Work?)

Just days before, there was a data breach at 51 stores of leading freight forwarding company United Parcel Service, Inc. (UPS). Malicious software was utilized to siphon data of approximately 105,000 customer transactions between January and August, including names, postal addresses, email addresses and credit- or debit-card data. The cyber attack affected about 1% of its 4,400 UPS Stores that run on independent private networks and was mostly centered in 24 states, including California, Florida, Texas and New York (read: UPS Stores Hit by Cyber Attack, Customer Data Compromised).

The U.S. federal government is arguably the largest producer, collector, consumer and disseminator of data in the world. This makes government contractors ideal targets for cyber attacks as they are entrusted with sensitive information related to national security secrets, military and critical infrastructure, and personal information of all U.S. citizens and residents.

In August, a data breach at Virginia-based U.S. Investigations Services (:USIS), which performs background checks for the U.S. government employees, led to data being compromised of at least 25,000 workers, including some undercover investigators. These included Social Security numbers, education and criminal history, birth dates of workers, spouse and relatives.

The Chinese owner of an aviation technology company was accused in July of stealing sensitive information about The Boeing Company’s (BA) C-17 military transport plane and Lockheed Martin Corporation’s (LMT) F-22 and F-35 advanced fighter jets. Similar cyber intrusions were also reported in 2009, when Chinese hackers tried to invade Pentagon computers for gaining information about its F-35 program.

Opportune Time to Invest in Cyber Security Stocks?

The incessant cyber attacks and related security risks offer a great investment proposition for the global cyber security market. In addition, a broad proliferation of smartphones and other hand-held devices make cyber security threats a potent weapon for businesses.

According to data by Internet security firm Symantec Corporation (SYMC), cyber attacks on businesses in the U.S. surged 91% year over year in 2013. It is no wonder then that global spending by corporations to combat cyber-attacks are projected to rise to about $77.7 billion by 2014 and to $700 billion by 2024. A bulk of this is likely to be spent in the U.S., which is billed as the biggest cyber security spending nation by Gartner and Forester Research.

While cyber security spending by federal agencies will mostly revolve around the development of cyber weapons, cyber defense products and services, corporate firms will primarily seek to develop technologically robust products and services for the IT domain and equipment. This would include continuous upgrade of technology and skills to counter technological obsolescence.

3 Cyber Security Stocks Worth Buying

CACI International Inc. (CACI): Based in Arlington, VA, CACI International delivers IT applications and infrastructure to improve communications and secure the integrity of information systems and networks, enhance data collection and analysis, and increase efficiency and mission effectiveness. This Zacks Rank #2 (Buy) stock is a leading provider of IT outsourcing services for the U.S. federal government with ample exposure to the Department of Defense and Department of Homeland Security.

CACI International has long-term earnings growth expectation of 10.0% and a forward PE of 13.5x. Furthermore, earnings estimate revisions for the current year have been moving up, implying strong inherent growth potential.

Carbonite, Inc. (CARB): Headquartered in Boston, MA, Carbonite is a leading provider of hybrid backup and recovery solutions for businesses. This Zacks Rank #2 (Buy) stock offers a comprehensive suite of affordable services for data protection, recovery and anywhere, anytime access. Carbonite has long-term earnings growth expectation of 27.5%.

NCI, Inc. (NCIT): Headquartered in Reston, VA, NCI is a premier provider of enterprise solutions and services to the U.S. defense, intelligence, health care, and civilian government agencies. This Zacks Rank #2 (Buy) stock delivers cost-effective solutions and services in the areas of cyber security and information assurance; enterprise information management and advanced analytics; cloud computing and IT infrastructure optimization; IT service management; and modeling, simulation and training. NCI has long-term earnings growth expectation of 5.0% and a forward PE of 19.5x.

Moving Forward

A report in the Wall Street Journal observed: “Foresight is forearmed. In an environment where threats are both real and virtual and physical damage can be triggered by natural forces or nefarious intent, the best approach is preparedness.” True to this spirit, investment in cyber security stocks is likely to benefit shareholders with high ROI as well as annul cyber threats to the society as a whole.

Read the Full Research Report on JPM
Read the Full Research Report on UPS
Read the Full Research Report on HD
Read the Full Research Report on BA
Read the Full Research Report on TGT
Read the Full Research Report on BKS
Read the Full Research Report on LMT
Read the Full Research Report on NCIT
Read the Full Research Report on CARB
Read the Full Research Report on CACI


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