Author: Mr. X
FBI Director Christopher Wray has said that the agency is tracking about 100 different kinds of ransomware. Ransomware is no longer something obscure or something only large companies need to worry about. The attack on Colonial Pipeline led to panic buying and gas shortages. The attack on JBS led to fears that there would be food shortages. Ransomware has reportedly even disrupted hospitals and schools.
Wray has even said that there are “parallels” to the September 11 attacks. President Joe Biden has created a “Cyber Safety Review Board” (CSRB), recognizing that this is a challenge to American national security, not just a criminal matter. However, unlike with 9/11, the government is leaning far harder on the private sector to protect itself. In most cases, you’re on your own. Though the United States government has been working to recover the money paid in the Colonial Pipeline case, it was a wake up call when Press Secretary Jen Psaki said initially paying the ransom was a “private-sector decision.”
The COVID-19 pandemic has fundamentally changed the way people around the world view work, education, and entertainment. Leaving home and enduring a commute or possibly putting yourself in danger from a virus just doesn’t seem worth it to many people. Rising crime in many American cities also has made Americans far less interested in being close to urban centers.
However, this has also created new vulnerabilities. There have been countless cases over the past few months of Zoom meetings gone wrong, critical information inadvertently leaked, or valuable trade secrets outright stolen. The rise of cryptocurrency and the efforts by states such as China to create a state-backed digital fiat currency also makes cybersecurity more important than ever. If something as fundamental as money only exists online, it means that it is at the mercy of the first person who can claim it.
For that reason, cybersecurity will be one of the most quickly growing sectors in the next few years. Just as firearms and ammunition suppliers like Vista Outdoor [VSTO] have grown over the last year along with concerns over physical security, concerns over cybersecurity will drive worried consumers to companies that can credibly promise to protect their online assets.
The first ETF in this area was the ETFMG Prime Cyber Security ETF, with the creative ticker HACK. However, Global X Funds Global X Cybersecurity ETF [BUG] has slightly outperformed it over the last year.
Cloudflare [NET] is course almost a requirement for almost every business. It’s the de facto Internet “bodyguard” for almost every enterprise. However, while this is something you might consider holding for the long-term, it’s hardly an unknown name. Slow steady growth is possible, but it’s hardly going to soar out of nowhere.
Zscaler [ZS] is slightly more exciting because of its entirely cloud-based approach. It has growing revenue, beat analyst estimates in the last quarter, and management has raised its own revenue targets. This was all before the blitz of ransomware warnings over just the last few days.
Fastly [FSLY] had a great 2020, but until recently, was suffering a difficult period. Unlike ZS, it disappointed investors with its revenue, and the stock declined by more than 25% over the last three months. However, it’s been increasing over the last week as part of the larger movement into this sector.
There are some smaller companies that might be worth looking at as an outside play. One example would be the Israeli company Cyren Ltd. [CYREN]. It’s down over 30% over the last year, but has been recovering rapidly over the last month. Its price reached over $0.80 in after-hours trading last night.
It’s rare that we see a mega-trend develop this clearly and this quickly. However, everyone at once seems to be awakening to their shared vulnerability in an online economy. For those looking to invest not just over the next month or next year, cybersecurity must be a foundation of your portfolio. Unlike a meme stock or a new cryptocurrency, this sector will grow only more important as time goes on. Even better, with the federal government viewing it as a national security priority, those who invest in cybersecurity might benefit from federal largesse if protecting against ransomware comes under the Biden Administration’s increasingly broad definition of “infrastructure.”