If there is any silo of software technology that will always be considered “must have” for corporate America and the government, it is cybersecurity software. With each passing year, the talents of the cyber thieves and hackers improve. The fortunate turn for the sector has been the shift to cloud-based protocols. In addition, the adoption of zero-trust architecture has been huge for the sector.

Zero-trust architecture is an alternative security model that addresses the fundamental flaw of traditional strategies that data only needs to be protected from outside of an organization. The zero-trust model views data security through a new lens, enabling parameters that dictate access and restrictions internally as well.

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A new BofA Securities research report notes vendors are increasingly benefiting from the cloud, zero-trust and the seemingly new normal of telecommuting. They noted this in the firm’s recently released research primer on the sector.

We favor vendors that are positioned well to benefit from the forthcoming multi-year industry transitions, with growing adoption of Zero Trust architectures, Security-as-a-Service, Identity, Endpoint and Email security.

Four top companies are leaders in this brave new world of cybersecurity, and all are rated Buy at BofA Securities.

CrowdStrike

The cybersecurity giant’s stock was cut in half before rallying back. CrowdStrike Holdings Inc. (NASDAQ: CRWD) is a leader in the endpoint protection platform (EPP) market. EPP solutions help protect enterprises’ internet-connected devices from cyberattacks, and there is a market shift from signature-based on-premises solutions to cloud-based platforms that use machine learning.

CrowdStrike’s platform is one of the few 100% cloud-based architectures and is uniquely positioned to displace incumbents with its platform breadth, including advanced detection and remediation capabilities.

The analysts remain very positive and said this:

Our price objective is based on roughly 23x our calendar year 2021 estimated Enterprise value to sales metric. We choose EV/Sales as our target valuation metric due to CrowdStrike’s early growth stage and investment period creating outsized operating losses in the near term. The multiple is a premium versus SaaS-based software companies (10x) and versus SaaS/cyber security peers (15x). We believe a premium valuation is warranted due to CrowdStrike’s higher growth profile and potential to take meaningful share in new markets that would increase the total addressable market and potentially accelerate growth. The positives of CrowdStrike’s high growth and long-term opportunities are somewhat offset by lower margins.

BofA Securities has set a $100 price target on the shares, while the Wall Street consensus price target is $104.67. CrowdStrike stock closed Tuesday’s trading session at $101.04 a share.

CyberArk Software

This stock is still trading well below its 52-week high. CyberArk Software Ltd. (NASDAQ: CYBR) develops, markets and sells software-based security solutions and services for organizations to safeguard and monitor their privileged accounts.

The company’s solutions include Core Privileged Access Security for risk-based credential security and session management, with add-on options for least privilege server and domain controller protection, as well as secure remote vendor access to privileged access security; Application Access Manager for secrets management for application types and non-human identities; and Endpoint Privilege Manager for least privilege and credential theft protection for workstations.

CyberArk also provides its Sensitive Information Management solution, as well as software maintenance and support and professional services. The company offers its products to financial services, manufacturing, insurance, health care, energy, utilities, transportation, retail, technology and telecommunications industries and government agencies through direct sales force, as well as distributors, systems integrators, value-added resellers and managed security service providers.

Tepid first-quarter earnings took a toll, but the analysts said this:

We believe the company’s multiple should be a premium versus hardware-exposed vendors and a slight discount to SaaS peers given CyberArk’s perpetual sales model can be lumpy. This risk is mostly offset by the healthier state of the privileged account management market and reacceleration of growth for CyberArk. Management has highlighted that many temporary issues are now behind the company, and the market is expected to remain high-growth.

The BofA Securities price objective is $130, and the posted consensus target is $114.50. CyberArk Software stock closed at $101.10 on Tuesday.

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Ping

Shares of this cyber and data security company were shellacked since the initial public offering last year but have rallied back. Ping Identity Holding Corp. (NYSE: PING) is a leader in identity access and management. Its products safeguard enterprise applications and data by providing controls around user authentication, access and more.

Ping’s single-sign-on technology helps streamline user workflow by providing a single password for multiple applications to reduce log-ins. Additional product features include consumer identity management, Internet of Things (IoT) and application programming interface (API)  management. Ping differentiates with a history of complex deployments across hybrid networks.

The Ping Intelligent Identity platform provides customers, employees, partners and, increasingly, IoT with access to cloud, mobile, software as a service (SaaS) and on-premises applications and APIs, while also managing identity and profile data at scale. Over half of the Fortune 100 choose to use the company for the identity expertise, open standards leadership and partnership with companies including Microsoft and Amazon.

The analysts are very bullish on identity stocks and noted this:

For Ping, we raise our PO which is now based on roughly 8x enterprise value to sales vs 7x prior, as we believe its cloud transition, sticky large enterprise customer base, and expansion with products may help close the valuation gap versus peer Okta trading at 25x.

The $27 BofA Securities price target was recently lifted to $32. The consensus target is $28.08, and Ping Identity stock closed at $30.63, after rising well over 6% on Tuesday.

Zscaler

This remains one of the hottest stocks and is a top pick at BofA Securities. Zscaler Inc. (NASDAQ: ZS) is a leader in the cloud-based secure web gateway market (SWG). These gateways help protect enterprise internet traffic, and there is a material market shift from legacy appliance-based approaches to cloud services.

Zscaler’s products are uniquely architected to address the higher-growth cloud or SaaS portion of the market, and Zscaler’s platform is designed to apply additional security features outside of SWG to all enterprise traffic over time.

The analysts love the company and said this:

Zscaler was a top pick entering the year, a top COVID pick, and remains a top pick as its set to ride multi-year trends toward cloud-delivered network security. The market now better understands Zscaler’s approach, and the COVID disruptions highlight the need for an architecture that is agnostic to user and application locations.

BofA Securities recently raised its price objective to $110 from $100. The consensus figure is much lower at $90.33. Tuesday’s last trade for Zscaler stock hit the tape at $102.81.

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While the whirlwind around the top stocks in the sector has slowed dramatically from the pace of five and six years ago, the need is increasing every year. These top companies offer investors solid ways to play the sector in a multitude of areas. Most importantly, the stocks are trading at levels that still offer solid entry points, although partial position buys may not be a bad idea now.

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