3 Cybersecurity Stocks to Buy on the Pullback
Tech stocks are rallying. Within the sector, cybersecurity stocks offer the best combination of growth and value especially as the sector's importance grows everyday. Read on to find out why...
Tech stocks are rallying. Within the sector, cybersecurity stocks offer the best combination of growth and value especially as the sector's importance grows everyday. Read on to find out why investors should consider buying top cybersecurity stocks like Fortinet (FTNT), Qualys (QLYS), and OneSpan (OSPN).
After more than a year and a half of a brutal bear market, tech stocks are finally catching a bid. Since the mid-June lows, the Nasdaq 100 (QQQ) is up 17.4%. Some of the factors behind the rally are an unwinding of extreme bearish sentiment, the Fed's "dovish hike', and a better-than-expected Q2 earnings season.
To be clear, the economy and stock market continue to face significant challenges. However, it's quite likely that tech stocks will bottom before the broader market just like they topped well before the Dow Jones Industrial Average and the S&P 500. Within the tech sector, investors should consider cybersecurity stocks especially as these companies continue to deliver earnings growth while their total addressable market (TAM) continues to expand at a healthy clip.
Additionally, cybersecurity continues to grow in importance. It's a necessity for every company to secure their cloud infrastructure and IT stack which are increasingly integral to daily operations. It's also an area of national security importance as cyberspace is another frontier on which countries battle. Given the bear market in stocks and improving prospects for cybersecurity stocks, investors should consider buying.
QLYS is a pioneer and leading provider of cloud-based IT, security, and compliance solutions. The company offers Qualys Cloud Apps, Threat Protection, Continuous Monitoring, Multi-Vector Endpoint Detection and Response, and Web Application Scanning, among other solutions. Its customers include enterprises, government entities, and small and medium-sized businesses across several industries.
QLYS has been an impressive outperformer as it's only down 10% YTD and is up 19.8% over the past year. The major factor is that unlike so many other tech and cloud-based stocks, it's continued to see impressive growth in terms of earnings and free cash flow. Additionally, the need for security regarding cloud-based applications continues to grow at a faster rate than in other markets, and QLYS is one of the premier companies in this space.
In its last quarter, QLYS had revenue growth of 17%, and an increase in operating income of 27%. Next quarter, analysts expect this pace of growth to continue with an 18% increase in revenue and 31% jump in operating income.
From a more qualitative sense, QLYS offers investors an opportunity to buy the leading cloud security companies at a very reasonable valuation. QLYS' strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. QLYS has an A grade for Quality due to its industry, leading status.
Within the Software – Security industry, it is ranked #5 out of 29 stocks. Click here to see additional POWR Ratings for QLYS.
FTNT is a provider of cybersecurity and networking solutions and services. Its customers include enterprises, communication service providers, government organizations, and small businesses.
It's a leading provider of firewall services and VPN services. Its premier product is FortiOS, which is a network operating system to manage network security appliances. Its cloud security offerings are available for deployment in public and private cloud environments and include application security.
Like QLYS, FTNT has been a relative outperformer with a 9% gain over the past year. While most tech stocks have been mired in a brutal bear market, FTNT has consolidated in a tight range, indicating that institutions are using adverse market conditions to accumulate shares.
Over the past year, FTNT's revenue has increased 34% to $954.80 million. More impressive is that its revenue is accelerating. Next quarter, analysts are expecting 35% revenue growth and 39% EPS growth.
Given these strong fundamentals and trajectory, it's not surprising that FTNT is rated a B by the POWR Ratings which translates to a Buy. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500's average annual growth of 8.0%. Click here to see more of FTNT's POWR Ratings.
OSPN is a provider of digital solutions for identification, security, and business productivity. Some of its most well-known products are OneSpan Sign, which captures and processes a range of e-signatures for transactions, OneSpan Cloud Authentication, a cloud-based multi-factor authentication solution, and OneSpan Identity Verification, which enables identity verification services for banks and financial institutions.
Compared to its peers, OSPN has been an underperformer with a 35% YTD decline. However, the company is well-positioned in a growing market. For the full year, the OSPN is forecasting adjusted EBITDA between $5 million and $7 million. It also sees annual recurring revenue growth between 16% and 18%.
What makes them "MUST OWN"?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
The stock's decline and continued growth have made it intriguing from a valuation perspective. For example, it has a market cap of $445 million and total cash of $120 million. It also has a price to sales of 2 with gross margins of 67% which is an indicator of future profitability if revenue growth continues.
OSPN has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
OSPN also has strong component grades including a B for Quality and Value. It's also the second-ranked company in the Software – Security industry out of 29 stocks. Click here to see OSPN's complete POWR Ratings.
QLYS shares closed at $122.32 on Friday, up $0.20 (+0.16%). Year-to-date, QLYS has declined -10.86%, versus a -12.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini's background, along with links to his most recent articles.
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