Fight the 21st Century War With These 3 Cyber Security Stocks

Written by Jason Simpkins
Posted June 18, 2021

Earlier this week, President Biden met with Vladimir Putin and recent cyberattacks were one of the main points of discussion.

They've been an issue for a while, of course, but they've suddenly taken on a new relevance over the past year as they've begun targeting increasingly sensitive infrastructure and supply lines.

The most recent was an attack on JBS, the world's largest meat supplier. The hack shut down operations in Australia, Canada, and the United States, affecting everything from local grocery stores to major chains like McDonald's.

Prior to that, it was the Colonial Pipeline ransomware attack that severed supplies of gasoline and jet fuel from Texas to the East Coast. You no doubt remember the frantic rush at gas stations around Memorial Day.

And it was just last year that the SolarWinds hack exposed hundreds of thousands of organizations around the world, including most Fortune 500 companies and government agencies in North America, Europe, Asia, and the Middle East to malevolent actors. At least six U.S. government departments, including energy, commerce, treasury, and state were breached, along with the National Nuclear Security Administration.

All of these attacks have been traced back to Russia — something that should come to the surprise of exactly no one.

This is 21st century warfare.

It's the present and also the future of conflict.

In my time writing investment newsletters focused on defense, security, aerospace, and military technology (first The Wealth Warrior and now Wall Street's Proving Ground) I've talked to a lot of military experts.

And what they've told me is this: We're almost at the point where “war” isn't one country's soldiers killing another country's soldiers; it's one country sending its robots to kill another country's robots.

Like everything else in society, this entire human interaction is now shifting online. Just as the average person has become reliant on the internet for basic functions, so too has the military.

Troop locations, missile targeting, reconnaissance... All of these things rely on computers.

So if you hack an enemy's network, disable their satellites, shut down their critical infrastructure... you win.

It doesn't matter how many troops or tanks or fighter jets or carriers you have.

If an enemy can disable your missile shield you might surrender just on the threat of them raining fire down on you.

Our adversaries — namely Russia and China — know this.

They know they can't compete with the brute force of the U.S. military. They can't, or won't, match U.S. defense spending.

But they don't need to. They just need to be able to render our massive force inoperable.

What's more, they might not even need to do that if they can disable or undermine our infrastructure, our economy, and our democracy to the point that we collapse on our own.

So that's what they're doing.

The Department of Homeland Security says Russia’s military intelligence agency has repeatedly infiltrated the control rooms of power plants across the United States. These efforts could enable it to take over parts of the grid by remote control.

That accusation was further substantiated by Hans-Georg Maaßen, the former head of the German intelligence agency BfV. He accused both Russia and China of planting “cyberbombs,” or malware that does nothing in the short term, but could later be detonated to shut down power networks or ISPs.

“In the case of China, Russia, we clearly see measures like espionage, but it could also be sabotage with the goal of attacking companies in Germany — infrastructure firms in the widest sense — at some future point,” Maaßen said. “That is a scenario that we view with concern.”

Indeed, China was infiltrating the U.S. Department of Defense, defense contractors, and other government agencies to steal sensitive data as far back as 2003.

Such attacks stole intellectual property, including Google’s source code and the emails of Chinese human rights activists, as well as government secrets, designs for weapons systems, and usernames and passwords.

And those attacks have only accelerated since then, growing increasingly ambitious and sophisticated.

Just last year, after COVID spread around the world, the Chinese government used hackers to target Moderna and other biotech companies to steal data related to vaccine development.

This is the new reality. This is war.

And corporations are starting to wake up to that fact.

As these attacks have escalated, corporations and governments alike are ramping up spending on cybersecurity.

Research firm Gartner forecast that global spending on information security and risk management services will jump to $150.4 billion this year, a gain of 12.4% from last year.

And another firm, Markets and Markets, says the segment will reach $232 billion by 2022.

That means there's a huge opportunity here for investors.

Cyber security companies like Palo Alto Networks (NYSE: PANW) and CyberArk Software (NASDAQ: CYBR) will reap the rewards of this boom.

These companies have more than tripled in value since I first recommended them back in 2018 (and I've was talking about cybercrime long before that).

Palo Alto Networks is a very well-established name in the cybersecurity sector, and offers some of the best firewalls in the business.

With nearly 40,000 customers in 150 countries, it has captured a sizable portion of the global market.

Its products and services are used to protect the data infrastructure of 85 of the Fortune 100 companies and more than half of the Global 2000 companies.

And CyberArk is focused on privileged account security solutions. In other words, it has a modular system that can be added to a company’s IT infrastructure to manage, monitor, and block access from stolen, abused, or misused login credentials.

There's also the ETFMG Prime Cyber Security ETF (NYSE: HACK), which owns a basket of popular cybersecurity stocks for broader exposure.

Qualys is the fund's largest holding. It also includes shares of CyberArk and Palo Alto, among others.

The sector is certainly hot right now with all the recent activity. But there's still a lot of growth lying ahead.

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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