Software stocks have had an incredible run during the 10-year bull market, but some of the top players in the industry were hammered recently, and it may make sense to start looking for such companies that are not so valuation-rich. In fact, as recently as last week, some of the top stocks in the cloud, software as a service and customer relationship management areas were absolutely torched, and while they remain outstanding stocks to invest in, the rich valuations attached can’t survive forever, especially if the market takes a dive.
One group that remains in demand is security software, and with good reason. Even as technology has improved to keep hackers and cybercriminals away, the technology they use has improved as well. So, the constant battle to stay one step ahead remains in place.
A new Baird research report points out that in the Marsh-Microsoft survey of corporate America, 22% of the respondents ranked cybersecurity risk as the top concern. An additional 78% said cyber concerns ranked in the top five of all risks. Plus, an additional 64% of respondents said a cyberattack on their organization would be the biggest driver to increase the cybersecurity budget, more than any other factor.
We screened the Baird cybersecurity stocks coverage list and found four outstanding companies, all of which are rated Outperform.
While not a pure play in cybersecurity, this is a mega cap tech leader for more conservative accounts to consider. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Cisco cybersecurity products give clients the scope, scale and capabilities to keep up with the complexity and volume of threats. Putting security above everything helps corporations innovate while keeping their assets safe.
Shareholders receive a 2.85% dividend. The Baird target price on the shares is $54, and the Wall Street consensus target is $55.58. The stock closed Tuesday at $49.12.
This is a smaller and perhaps less known company on which the Baird team is very positive. Mimecast Ltd. (NASDAQ: MIME) provides cloud security and risk management services for corporate information and email.
The company offers Mimecast Email Security services, including targeted threat protection that extends traditional gateway security to protect organizations against targeted attacks and audit and reporting, and it enables administrators and security specialists to monitor and report attempted attacks. Mimecast also offers URL Protect, which tackles threats from emails containing malicious links.
The company offers the latest capability of its Targeted Threat Protection service, Internal Email Protect, the first-to-market cloud-based security service providing threat capabilities for internally generated email. Internal Email Protect allows customers to detect and remediate security threats that originate from their users’ email accounts.
The $58 Baird price target compares with the $56.05 consensus figure. The shares closed most recently at $36.35.
Palo Alto Networks
This continues to be one of the most dominant players in its industry. 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.
Baird has a $275 price target, and the consensus price objective is $261.82. The shares closed at $207.47 on Tuesday.
This company has long been mentioned as a potential takeover candidate, and it is also a top pick at Baird. Proofpoint Inc. (NASDAQ: PFPT) provides threat protection, incident response, regulatory compliance, archiving, governance, eDiscovery and secure communication solutions worldwide. Its security-as-a-service solutions comprise an integrated suite of on-demand data protection solutions that enable large and midsized organizations to defend, protect, archive and govern their sensitive data.
The company provides Proofpoint Enterprise Protection, a communications and collaboration security suite designed to protect customers’ mission-critical messaging infrastructure from outside threats, including spam, phishing, unpredictable email volumes, malware and other forms of objectionable or dangerous content before they reach the enterprise.
E-mail protection remains a top priority for many companies, and this is a distinct positive for Proofpoint. The company acquired Cloudmark two years ago for $110 million in cash, which strengthened its industry-leading investment in messaging security and threat intelligence.
Baird has set a $145 price target. The consensus target is $144.80, and shares closed at $125.17.
While the whirlwind around the top stocks in the group has slowed dramatically from the pace of four and five years ago, the need is increasing every year. These top companies offer investors solid ways to play the theme in a multitude of areas.
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