Top Cybersecurity Stocks to Buy in 2017

By Joe Tenebruso Markets Fool.com

Image source: Getty Images.

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The number of U.S. data breaches surged 40% to an all-time record high of 1,093 in 2016, according to a new report by the Identity Theft Resource Center and CyberScout. To combat this growing threat, The Trump administration has vowed to strengthen America's cyber capabilities.

"Cyberwarfare is an emerging battlefield, and we must take every measure to safeguard our national security secrets and systems," reads a page on the official whitehouse.gov website.

Fortunately, several companies have the technology that can help Americans strengthen their cyber defenses. Read on to learn about these cybersecurity leaders, and see why their stocks are well positioned to reward investors in the year ahead.

Image source: FireEye.

FireEye (NASDAQ: FEYE) is a leader in next-generation cybersecurity. FireEye's patented multi-vector virtual execution (MVX) architecture analyzes threats across hundreds of combinations of operating systems, apps, and software versions. The company excels at protecting against so-called zero-day exploits - attacks on vulnerabilities that up to that point were unknown to the security community.

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FireEye's cybersecurity platform is further strengthened by its intelligence network, which collects data about threats and attackers from more than 1,000 FireEye security experts, 5,000 customers, and millions of network and endpoint sensors across 67 countries. This global intelligence network helps FireEye and its customers constantly update their security operations to defend against newly discovered dangers. Each new customer adds more data points, which bolsters FireEye's threat detection abilities, thereby making the network more valuable for both new and existing customers. It's a virtuous cycle that should continue to benefit FireEye and its growing base of users.

For these reasons, FireEye's stock has traded at sky-high valuations for most of its existence as apublic company. Yet after a rough 2016 that saw FireEye's stock fall 43% on concerns regarding decelerating revenue growth and mounting losses, shares are now much more reasonably valued at about three times sales. Additionally, new CEO Kevin Mandia is leading a major restructuring effort that's helping to slash costs and place the company on track for positive free cash flow generation in 2017.

This improved financial discipline, combined with the strong possibility that FireEye -- as a Department of Homeland Security certified technology provider -- will benefit from the U.S. government's intensified focus on cybersecurity sets up FireEye's stock as a solid turnaround play in the year ahead.

Image source: CyberArk.

While FireEye excels at defending against external threats, CyberArk(NASDAQ: CYBR) provides strong protection from internal data breaches. The Israel-based company is the leader in "privileged account" security solutions, which help to protect against cyber attacks that use insider privileges to penetrate network perimeters and assault the most vital aspects of an enterprise's IT infrastructure.

CyberArk provides cyber protection services to more than 2,800 businesses, including 45% of the Fortune 100 and 25% of the Global 2000. Yet that's only a small fraction of the companies that could benefit from CyberArk's expertise, particularly as small and mid-size businesses come to understand the importance of strengthening their cybersecurity defenses in the coming years. Additionally, CyberArk is enjoying strong growth in its sales to government organizations, which may be further boosted by the Trump administration's desire to strengthen America's cyber defenses.

Impressively -- and unlike many of its competitors -- CyberArk is profitable on a GAAP basis, with the company earning a net income margin of nearly 13% in the third quarter. That comes even as CyberArk is investing heavily into R&D to strengthen its product arsenal, as well as to significantly expand its sales force -- two moves that should lead to even higher sales and profits in the years ahead.

With 43% of data breaches caused by internal actors, according to a report by Intel Security, privileged account security is rapidly becoming a necessity for an increasing number of businesses and government agencies around the world. CyberArk owns this highly profitable niche, which makes it a stock cybersecurity investors may wish to consider.

Image source: Symantec.

The increasing frequency of data breaches and the government's new focus on cybersecurity may also heighten consumers' perceptions as to the importance of securing their own personal devices. And that plays right into the wheelhouse of consumer cybersecurity powerhouse, Symantec (NASDAQ: SYMC).

With its award-winning Norton antivirus product, Symantec helps its customers secure their data across devices such as PCs, Macs, tablets, and mobile phones. Symantec also recently purchased LifeLock (NYSE: LOCK), the leader in identity theft protection services, and BlueCoat, which offers security solutions for networks and cloud services. Together, these acquisitions will allow Symantec to provide an "end-to-end" bundled cybersecurity offering to consumers and businesses of all sizes. They also make Symantec the largest pure play cybersecurity company -- a valuable position in an industry where spending is forecast to top $1 trillion over the next half decade.

All told, Symantec -- and its shareholders -- have many ways to profit from the growing need for effective cybersecurity solutions in the years ahead.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends FireEye. The Motley Fool recommends CyberArk Software. The Motley Fool has a disclosure policy.