In this segment from Market Foolery, the cast talks cybersecurity after a series of high-profile global attackshave put several cybersecurity companies back in the spotlight. It should be no surprise that shares across the sector were up after such a visceral reminder of how important their functions can be. But given how obvious it is that such breaches will only become more common, the real question may be why the stocks have not traded even higher.
A full transcript follows the video.
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This video was recorded on May 15, 2017.
Chris Hill: Oneof the big storiesover the weekend, which is having ripple effects onWall Street, and that is the cyber attacks that took place affecting businesses around the world. There wasthe ransomware, a tech which encrypts files and thendemands payments to unlock them, and the so-called "Wanna Cry" malware that was spreading around the world and affecting businesses. Maybe not surprisingly, cybersecurity stocks are looking good today.Symantec (NASDAQ: SYMC),Palo Alto Networks(NYSE: PANW),FireEye(NASDAQ: FEYE) shares all up between 4% to 8% today. Again,not a surprise that they're up. But I'msort of curious about this industry,because I look at cyber attacks as something that'sonly going to get worse, there will only be more of them in the future. I'm not saying these stocks should be up every day. But what's going on with these businesses, that we're not seeing a bigger bull run on these stocks?
Jason Moser:Doyou want to start?
Taylor Muckerman:I think it's a very fragmented industry. I'm not sure there's any clear-cut winners. Not just one winner.I think you have a lot to choose from. Alot of private companies in this space, too. So I think the fragmentation might be one reason why. Butyou see this every time after there's a hack ofmeaningful size. They pop in the next few days,then they come back down to earth.I don't think a lot of these businesses have the stability you might see,because a lot of them are fairly new.I think there's still some hesitation around who might be the winners here,kind of like 3D printing, whichwe might talk about a little later --
Hill:We will get into that.
Muckerman:Theindustry makes a lot of sense, butI still think that some of the companies in there --just like this industry,a lot of 3D printing companies are privately held, so there'scompetition behind the scenes that investors might not be witnessing,and I think that probably holds true herewith the cybersecurity industry.
Moser:Yeah.I think first and foremost, it is anextremely difficult market to understand.I think it's difficult for investment analysts to understand.I think it's a difficult market for those market professionals to understand, even. ButI think you have to ask yourself, what reallyconstitutes a sustainable edge in this line of work? Because really,when you think about it, the nature of the market, the nature of cyber threat, is to always becomesomething that no one has ever seen before.
Muckerman:Youhave to be fluid, yeah.
Moser:Andhow do you prepare for that? And how do you determine which company is best prepared for that? Becauseyou really don't knowuntil hindsight, "Well,everybody was prepared for that one, except forthat company and that company."So it's just very difficult to suss out the winners. Likeyou said, I think in general, theconcept makes sense. It seems like it would be anopportunity, albeit, we're tending to root against thesetypes of things, but they're going to happen no matter what. But I think it's so fluidand it's so difficult to figure out whatconstitutes any kind of a sustainable edge there, it makes it really difficult to pick a winner. Andit's fragmented, and then you have private opportunities versus public. The tech moves fast, andI think this moves even faster.
Muckerman:Andyou don't know you need it until it's too late. If you're a company,how are these Palo Alto Networks and FireEyes ...I mean, yeah, they can say theyprevented this from happening, because they can see the attacks that were rebutted, butuntil your company is attacked, you're just like, "We'rejust paying these people, and we're not really sure what they're doing for us," untilsomething like this happensand everyone freaks out and says, "Wehave to go pay somebody to help us!" And then a year goes by with no attacks, and maybeit goes by the wayside again until something like this happens.
Chris Hill has no position in any stocks mentioned. Jason Moser has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends FireEye and Palo Alto Networks. The Motley Fool has a disclosure policy.