By Matt McCallMay 15, 2017
They say the WannaCry cyberattack that locked up 200,000 thousand computers in 150 countries – impacting everything from hospitals to banks to factories to schools and more – was probably the work of amateurs. Not exactly a comforting thought, is it?
Like news of data breaches at Target (TGT), Home Depot (HD) and the U.S. government, this latest scare reminds us once again of the real possibility of a major cyberattack taking down large companies or even governments. It’s the downside of the new Tech Revolution, one of the mega-trends I follow closely that is resulting in big opportunities. Everything is now connected to everything else – or soon will be.
In fact, cybersecurity is heading to a whole new level of growth in the next few years as the burgeoning Internet of Things (IoT) will add to the amount of products and services that will be needed. Researchers say 200 billion connected devices by 2020, which is more than 1,200% growth from the 15 billion devices that were connected just in 2015! That connectivity is how we can close our garage door or turn on the lights from our phone. It’s how our refrigerator can alert us when the milk is getting low. It’s how we can visit the doctor from the comfort of our own home. But it’s also created more openings for hackers.
Most companies are not sufficiently prepared for cyberattacks and cannot risk being hit by one. Cybercrime damages are expected to cost $6 trillion dollars a year by 2021, which is double the $3 trillion in 2016. Companies and governments will need to shell out more and more money to keep up with highly sophisticated hackers, so spending on cybersecurity products is expected to surpass $1 trillion annually by 2021.
That makes cybersecurity yet another powerful NexGen investment theme that has to be on your radar. Just look at what happened today: The two biggest cybersecurity ETFs broke out to 52-week highs. The PureFunds ISE Cyber Security ETF (HACK) and First Trust NASDAQ Cybersecurity ETF (CIBR) are now up more than 35% in the past 12 months. Among individual stocks, Proofpoint (PFPT) surged more than 9% and FireEye (FEYE) was up nearly the same amount. Other stocks like Palo Alto Networks (PANW), Symantec (SYMC), Fortinet (FTNT) and Check Point Software Technologies (CHKP) all jumped about 3% or more.
Timing is critical with these investments, which is where our NexGen multidimensional approach really helps us. We identify the sweeping trends, zoom in on the areas with the strongest fundamentals and then rely on the charts in identifying optimal buy and sell points. There is a lot of hype in cybersecurity, and we all know that hype can often exceed reality on both the way up and the way down. If you’ve been investing even a short amount of time, you probably know the price swings these stocks are prone to. Just take a look at FEYE over the last year.
One of the exciting things about themes this big is that there are often a variety of ways to make money on them. If you’re buying and holding for the very long term, you would probably do just fine getting into HACK or CIBR, even at today’s 52-week highs. But you should be able to do a lot better by taking profits along the way and buying back in on pullbacks. I’m not necessarily talking about short-term trading, although that can be done, too. I’m talking more about an awareness of price action, chart patterns and investor psychology around a stock that allows you to maximize your profits while avoiding the downswings.
A second way to profit is to buy an ETF when the underlying trend is strong and then also invest in the strongest stock or two within that ETF as profit boosters. That’s a real possibility in this theme, and I currently have two cybersecurity stocks at the top of my watch list that would be good candidates for this approach.
A third strategy is simply to focus on the stocks with the best fundamentals and charts, and right now it’s those same two stocks I just mentioned. Right now, we’re waiting for the optimal entry point. To be honest, good entries have been difficult to come by in the past year, but this latest news has the money flowing again, and I wouldn’t be surprised if we get our next chance very soon. The moment we get that buy signal for either a shorter-term trade or a longer-term investment, I’ll let my NexGen subscribers know. Click here if you would like to be notified when we do.
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