3 Buy-Rated Security Software Stocks to Own for the Rest of 2018

Print Email

Despite the seemingly never-ending number of security breaches and hacks at everything from major corporations to government bureaus and departments to even the military, spending in the security software sector looks poised to have the best year in 2018 since 2015. Five years ago, the sector was red hot, and the number of initial public offerings at the time skyrocketed, but a lot of that enthusiasm went away as earnings and growth slowed dramatically.

In a new research report from the security software analysts at Deutsche Bank, while they are positive on the potential for the rest of 2018, they remain cautious and continue to keep an eye on valuations. The report noted this:

Sentiment remains mostly positive in the security software space although we have been hearing some concerns on a couple of different fronts. First, we heard skepticism on the firewall sector and the potential for product growth to stabilize in 2018 for appliance centric vendors in general. On the opposite end of the spectrum, investors noted some concerns on high growth names stating that the bull case is already well known for some companies.

Three stocks remain the top Buys at Deutsche Bank, and all are good additions for aggressive growth portfolios.

Palo Alto Networks

This stock was a momentum trader’s dream before crashing back to earth. Palo Alto Networks Inc. (NASDAQ: PANW) is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber threats. Unlike fragmented legacy products, its security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content.

Palo Alto Networks security platform has new features that were introduced to help security professionals overcome the distractions and time spent on problems caused by the overwhelming volume of alerts and manual processes associated with operating many discrete security products and, instead, expand breach prevention capabilities and boost operational efficiency.

The analysts noted this in the report, as the company had big news to report recently:

We had originally written something a little bit different in our weekly report on the company but all that changed last Friday evening. To start, we were most surprised by the announcement that Nikesh Arora (former COO of SoftBank and CBO at Google) would be replacing Mark McLaughlin as CEO and Chairman. While we normally do not like C-level changes – feedback on Arora from our internet team was very positive. Thus, we think the quality of his background should offset the normal negativity associated with unexpected changes at the CEO level. In addition, we were pleased by the numbers Palo Alto pre-announced that likely exceeded even the highest of expectations. And lastly, we are coming away with a higher level of confidence in the longevity of the company’s product revenue growth profile. All in, we continue to feel good on the stock.

The Deutsche Bank price target for the shares is $240, and the Wall Street consensus price objective is $205.09. The shares were trading early Tuesday at $207.25 apiece.