3 Top Cybersecurity Stocks to Buy in 2017

Markets Motley Fool

Cybersecurty is fast becoming a huge business. By 2021, Markets and Markets estimate the market size will reach $202 billion, a 65% increase from 2016.

Continue Reading Below

And really, that growth shouldn't be much of a surprise. Back in May, a worldwide ransomware attack, called WannaCry, took control of the computers of an estimated 10,000 companies and 200,000 individuals, resulting in massive downtime for companies, most notably for England's National Health Service.

There are no signs that cybersecurity attacks will slow down, either. Recent IDC research estimates that by 2019, 70% of major multinational corporations will "face significant cybersecurity attacks aimed at disrupting the distribution of commodities."

That's why now, more than ever, investors should consider adding a cybersecurity stock to their portfolio. There are plenty to choose from, of course, but CyberArk (NASDAQ: CYBR), Fortinet (NASDAQ: FTNT), and Palo Alto Networks (NYSE: PANW) are shaping up to be potentially lucrative plays in this space.

Company Market Cap
CyberArk $1.74 billion
Fortinet $6.75 billion 
Palo Alto Networks $12.7 billion

CyberArk Software 

Continue Reading Below

In the cybersecurity world, protecting not just the outer layers of the digital infrastructure but also the internal ones is key to protecting vital data. And that's where CyberArk comes in. The company protects what are called privileged accounts that have access to the most important, and lucrative, data. In short, if a hacker breaches a company's firewall, it's CyberArk's security systems that should keep them from getting hold of any sensitive data. 

The company performed well in its first quarter of 2017, reporting sales growth of 26% year over year to $59 million. Earnings were flat, but investors should remember that the company is debt-free and still has $287 million in cash. Management forecasts that overall sales will grow by 24% to 25% for the full year. 

One of the CyberArk's advantages is that it was one of the first cybersecurity companies to focus on this business. It has amassed a client list of 3,200 and works with 45% of Fortune 100 companies. And it's not done: To stay ahead of the competition, CyberArk purchased Conjur for $42 million this past quarter, giving it one of the only plays in development and operations security, for things such as privileged account credentials and authentication methods such as SSH and API keys.

Fortinet 

Fortinet runs the gamut of cybersecurity by offering solutions from firewalls to virtual private networks to anti-malware and application controls. The vast array of products allows the company to offer services and solutions for small and large companies alike, giving Fortinet access to nearly every part of the security market.

The company reported a great first quarter back in April. Revenue increased 20% year over year, net income skyrocketed 410% to $10.7 million, and non-GAAP earnings per share spiked 41.7%, to $0.17. Management expects full-year revenue in the range of $1.77 billion to $1.79 billion, up 18% at the midpoint, and EPS of about $0.89, up from $0.73 in 2016. 

In its most recent quarter, Fortinet said deals worth more than $500,000 grew 31% over the year-ago quarter. That's significant because it shows the company is solidly growing its client base, particularly with lucrative deals. 

On the company's conference call, Fortinet CFO Andrew Del Matto said, "In another first-quarter deal, Fortinet is being deployed in a large European financial institution, whose incumbent security solution was not scalable, powerful, or manageable enough to respond to its growing business and larger attack footprint." In short, Fortinet is gaining customers that its competitors can't keep up with. 

Palo Alto Networks 

Palo Alto Networks sells next-generation firewall solutions to more than 39,500 customers across 150 countries. Its products and services are used to help protect the data infrastructure of 85 Fortune 100 companies and more than half of Global 2000 companies. 

The company reported better-than-expected results in its fiscal third quarter, as its top line hit a record $431.8 million -- up nearly 25% year over year -- and beat its own outlook. Adjusted earnings per share rose 32.6% to $0.61, and the company continued to grow customers quickly. 

"We reported record revenue of $432 million in our fiscal third quarter and added the second highest number of new customers in the company's history," Palo Alto CEO Mark McLaughlin said in a press release. 

Palo Alto's advantage in the cybersecurity space right now stems from the company's new product expansions, such as its new Traps malware-blocking software and the introduction of its Aperture security software-as-a-service in Europe and Asia. The company is also earning more from its current customers and said on its third-quarter earnings call that all of its top 25 customers made purchases in the quarter.

Of course, none of these companies are a sure bet, but all of them are making significant moves in the cybersecurity space at a time when digital threats are rising and companies need security more than ever before.  

10 stocks we like better than Palo Alto Networks
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Palo Alto Networks wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends CyberArk Software, Fortinet, and Palo Alto Networks. The Motley Fool has a disclosure policy.