“I’ve been hearing about solving security problems for the last 10 years. We’ve been here and 10 years later, things have only gotten exponentially worse,” Ryan Naraine, former security director at Intel.
Over the past few months, a lot of U.S. media attention has been focussed on the country's pullout from Afghanistan in the final episode of what is derided as 20 one-year campaigns. Ironically, there is an even bigger war that the country has been waging for years--albeit on a very different battlefront--that has failed to garner the same degree of attention: Cybercrime.
A recent spate of ransomware attacks has crippled critical American infrastructure including the the nation’s largest oil pipeline, Colonial Pipeline; thousands of Microsoft Exchange Server zero-day attacks, SolarWinds data breach, Kaseya ransomware attack as well as supply disruption at meatpacker JBS by private and state-sponsored threat groups thus proving that virtually nobody is safe from these insidious attacks.
The situation has become so dire that U.S. President Joe Biden recently issued a rallying cry to tech executives urging them and other key players in the industry to do more to fight the growing cybersecurity threat.
“The federal government can’t meet this challenge alone, we’ve got a lot of work to do,”Biden told the executives gathered in the East Room.
But as often happens in the investing universe, there’s a silver lining to this mayhem.
Although the cybersecurity sector has generally been a laggard with the ETFMG Prime Cyber Security ETF (NYSEARCA:HACK) up 10.9% in the year-to-date vs. 19.2% gain by the S&P 500, Goldman Sachs remains very positive on the top cybersecurity and analytics stocks, and with good reason. After all, these are the main go-to companies that will be tasked with stopping this growing threat.
Here are our top 3 stocks to play the cybercrime explosion.
#1. Palo Alto Networks
Palo Alto Networks, Inc.(NASDAQ:PANW) is a California-based cybersecurity company that provides cybersecurity solutions worldwide. The company offers firewall appliances and software such as Panorama, a security management solution for the control of firewall appliances and software deployed on an end-customer’s network and instances in public or private cloud environments. The company also provides subscription services covering the areas of threat prevention, malware and persistent threat, uniform resource locator filtering, laptop and mobile device protection, and firewall; and DNS security, Internet of Things security, SaaS security API, and SaaS security inline, as well as threat intelligence, and data loss prevention.
Palo Alto continues to be one of the most dominant players in the industry. A couple of days ago, the company’s management said that it expects its annual revenue to climb by more 50% in two years due to ongoing demand among businesses for more security services in their cloud-based computing systems.
The company said for its 2024 fiscal year, it expects revenue to reach $8 billion, and total billings for that year to hit $10 billion. Palo Alto Networks just started its 2022 fiscal year, and the company estimates it will report revenue of $5.3 billion and billings of $6.6 billion for the year.
Goldman Sachs has a $535 price target for PANW, good for about 12% upside and significantly better than the Wall Street consensus of $479.51.
One of the lesser-known stocks in the U.S. cybersecurity industry, SentinelOne Inc. (NYSE:S) is best known for its Singularity Platform that delivers artificial intelligence-powered autonomous threat prevention, detection, and response capabilities across an organization’s endpoints, and cloud workloads, enabling seamless and automatic protection against a spectrum of cyber threats.
SentinelOne recently reported its first earnings as a publicly traded stock, with revenue growth clocking in at 121%, above expectations and adjusted profit in line with views. Annual recurring revenue (ARR) increased 127%, including the acquisition of Scalyr, the company said. The number of customers with ARR over $100,000 grew 140% year over year.
GS has set a $82 price target for S stock, good for 28% upside but not too far from the Wall Street consensus of $76.46.
Yet another lesser known name, Tenable Holdings, Inc. (NASDAQ:TENB) went public three years ago and may be one of the hidden gems in the cybersec universe and a top Goldman Sachs pick. Tenable engages in the development of security software solutions. It offers Cyber Exposure, which is a discipline for managing and measuring cybersecurity risk in the digital era. Its products include Tenable.io, Tenable.sc and Nessus Professional.
The company also delivers solutions in the field of application security, cloud security, compliance, energy, finance, health care, and retail.
Over 27,000 organizations around the globe rely on Tenable to understand and reduce cyber risk. Tenable customers include more than half of the Fortune 500, more than 25% of the Global 2000 as well as large government agencies.
Goldman Sachs has set a price target $61 on TENB stock, good for nearly 30% upside.