3 Best Stocks in Security Services

By Markets Fool.com

The digital world is an increasingly dangerous place. Cyber attacks are growing in size and frequency. In fact, just days ago, a massive security breach occurred at the Office of Personnel Management -- the human resources department that issues security clearances for the federal government -- that may have exposed the personally identifiable information of four million federal employees.

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Unfortunately, it appears that no organization is immune to the threat of cyber attacks -- but that's good news for security service providers, as effective cybersecurity solutions are becoming a critical part of doing everyday business, and demand is set to soar in the years ahead. Read on to see why FireEye , Palo Alto Networks , and LifeLock are some of the best investment opportunities in the security sector today.

Source: FireEye

FireEye is a leader in the $30 billionmarket for next-generation cybersecurity. Unlike traditional forms of security such as firewalls and anti-virus software which are capable of defending against known threats, FireEye's virtual machine-based security platform provides real-time threat protection against so called zero-day exploits-- attacks on vulnerabilities that up to that point were unknown to the security community.

FireEye's protection system is further strengthened by its Threat Intelligence subscription service, which collects data from its global network of virtual machines to constantly update its system to defend against newly discovered threats. In this way, network effects fortify FireEye's value proposition; each additional customer adds more data points, which strengthen FireEye's protection services and makes them even more appealing for both new and existing customers. It's a virtuous cycle that should continue to benefit FireEye and its growing network of users.

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This robust protection system has been met with strong demand. Revenue surged 163% to $425.7 million in 2014, and jumped an additional 69% to $125.4 million in the first-quarter of 2015. FireEye is also enjoying solid new customer additions and increases in both average contract length and dollar amount. And, importantly, FireEye's retention rates for its subscription based-services remain outstanding, with more than 90% of customers renewing. All of these signs point to a very bright future for this cybersecurity leader, and I expect FireEye to continue to reward shareholders with outstanding growth in the years ahead.

Source: Palo Alto Networks

In addition to FireEye, Palo Alto Networks is widely considered to be one of the best-of-breed cybersecurity companies. Palo Alto Networks offers a broader suite of products than FireEye, including a highly regarded network firewall. In addition, Palo Alto's Wildfire cloud-based advanced threat prevention system is a formidable competitor to FireEye, and it benefits from similar community-based intelligence network effects.

The company continues to shatter Wall Street's expectations, with four consecutive quarters of estimate-beating results. Fiscal third-quarter revenue soared 55% to $234.2 million, well ahead of analyst estimates for $223.2 million in revenue and the company's own guidance for revenue growth between 45% and 48%.

A powerful combination of new customer acquisitions and more business from existing accounts is fueling strong growth across Palo Alto Networks' business lines. That, in turn, has allowed the company to continue to take share in the rapidly growing cybersecurity market. Investors have taken notice; Palo Alto Networks' stock has exploded higher by more than 120% over the last year. Yet the potential for tremendous growth remains, and Palo Alto Networks' past stock price appreciation could foreshadow even greater gains in the years to come.

Source: LifeLock

While FireEye and Palo Alto Networks specialize in cybersecurity for businesses, LifeLock excels at providing identity theft protection for consumers. LifeLock's services go beyond the typical credit card and personal information monitoring offered by the major credit bureaus, to include non-credit alerts and Internet ID theft ring tracking. Additionally, if a customer is exposed to identity theft, LifeLock will spend up to $1 million on recovery experts to help remediate the situation.

A seemingly never-ending assault of cyber attacks is boosting demand for LifeLock's offerings, with the company adding a record 421,000 new subscribers during the first quarter of 2015 -- a 22% increase from the prior year period. Notably, LifeLock's members have also been willing to pay more for upgraded services, with first-quarter monthly average revenue per member increasing 5% year over year to $11.38. And maybe most importantly, LifeLock is doing an admirable job of retaining its customers, as evidenced by an annual retention rate that increased to 87.8% in the first quarter of 2015, up from 87.5% for the first quarter of 2014.

As data-breach concerns continue to stoke fears of identity theft among consumers, expect LifeLock's sales to continue to benefit from this worrisome trend.

The article 3 Best Stocks in Security Services originally appeared on Fool.com.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends American Express, FireEye, LifeLock, and Palo Alto Networks. The Motley Fool owns shares of Capital One Financial and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.