The world is progressively becoming more digital. There are billions of smartphones and connected devices, and companies increasingly work remotely and rely on cloud services. With this rise in technology has also come an increase in cyberattacks.
According to IBM‘s 2023 Cost of a Data Breach report, 51% of organizations were planning to increase investments in security as a result of a breach. The average cost of a data breach globally was over $4.45 million, up 15% from three years ago. And that’s just one type of cyberattack.
As attacks become more frequent (and expensive), the need for cybersecurity solutions has amplified, putting the industry in indispensable territory. For investors wanting to go along for the ride, here are three top cybersecurity stocks to buy in February.
If you were anywhere near the tech world in the past year, you know how unavoidable artificial intelligence (AI) has been. It has gone mainstream recently, but AI has been around for a while. One of the companies that helped usher in AI in its industry is CrowdStrike Holdings (NASDAQ: CRWD). Since 2011, it has been using AI to power its cybersecurity solutions.
CrowdStrike isn’t just a recipient of AI hype; its business results show the company is one of the premier cybersecurity stocks in the industry. It offers different modules that address a broad range of cybersecurity needs, and 63% of its subscription customers use at least five modules. Around 26% use seven or more.
Growing subscriptions and a comprehensive ecosystem helped CrowdStrike achieve $3.2 billion in annual recurring revenue (ARR) in its 2023 third quarter (ended Oct. 31), up 35% year over year (YOY). Its operating income surged 81% YOY to $356 million, showing increased profitability, and the margins on that income were also up 9% from two years prior.
CrowdStrike stock isn’t necessarily cheap, but it should be an excellent long-term investment for those who can stomach the volatility likely to come with it.
2. Palo Alto Networks
Founded in 2005, Palo Alto Networks (NASDAQ: PANW) is one of the older pure cybersecurity companies. It’s also one of the largest, with a market cap of over $100 billion (as of Feb. 5), thanks to a 120% stock price jump over the past 12 months.
Many cybersecurity companies offer various products, but Palo Alto Networks prides itself on essentially being a one-stop shop. Whether it’s firewalls, advanced threat protection, or cloud security, the company offers a comprehensive suite of tools.
In the first quarter of its 2024 fiscal year, it made $1.88 billion in revenue, up 20% year over year. Investors shouldn’t expect the same growth as you would from younger cybersecurity companies like CrowdStrike, but there’s something to be said about Palo Alto’s improving profitability.
In its latest quarter, it had operating income of $529 million with 28% margins. In the same period last year, those numbers were $322 million and 21%, respectively.
Palo Alto Networks has a customer base of large clients that need thorough solutions, and the company has been effective at providing them. If you want a company that operates on the full spectrum of cybersecurity, this is your go-to.
3. Cisco Systems
Cisco Systems (NASDAQ: CSCO) is a cybersecurity company with a slightly different approach than the other two on this list. While CrowdStrike and Palo Alto Networks are focused on cybersecurity software, Cisco’s bread and butter has long been its hardware.
Although hardware is what largely made Cisco the $200 billion company it is today, it has been taking steps to compete more directly with cybersecurity software. Its $28 billion acquisition of Splunk (expected to close later this year) is one of the clearest signs of the company’s strategic shift toward enhancing its software choices. The deal should boost its security portfolio.
Becoming more service-focused should benefit Cisco because it provides more recurring revenue than hardware sales. It won’t be (and hasn’t been) the quickest transition, but there are signs of progress despite some economic headwinds in the past couple of years.
In the meantime, Cisco’s dividend should help buy it some patience from investors. The quarterly dividend is $0.39, with a yield of around 3.1%. That’s well over double the S&P 500‘s recent average.
More importantly, investors don’t have to question the dividend’s stability. It has increased every year since Cisco began paying one in 2011.
Cisco can be a chance for investors to get exposure to the cybersecurity industry and simultaneously receive consistent income.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems, CrowdStrike, Palo Alto Networks, and Splunk. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
3 Top Cybersecurity Stocks to Buy in February was originally published by The Motley Fool