How to invest in cybersecurity stocks in 2021

Turns out COVID isn’t the biggest threat of 2021, cyberattacks are. In 2020, 51% of the US organizations surveyed by software safety company Sophos were hit by ransomware. Cybersecurity stocks are in focus after yet another attack last week and it’s clear – the need for cybersecurity is at an all-time high.

Attack of the modern-day pirates

Ransomware attacks lock companies out of their computer networks and steal their data so hackers can demand payment to unlock the victims’ computers. In the last month alone…

• JBS Foods, a meat-packing company, was attacked by Russian hacker group REvil – shutting down operations in Canada, Australia and the US.
• Colonial Pipeline, which carries 45% of the east coast’s diesel, paid a $4.4m ransom to get their data back after hackers shut down operations for a week.

Hackers usually target victims in unprepared industries with large cyber-insurance policies which are more likely to pay the ransom – making the energy, oil, and gas sectors extra vulnerable to attacks.

“A threat to national security”

With over 100 cybersecurity attacks already this year, Biden is proposing a nearly $60b IT spending plan to upgrade and modernize cybersecurity in the US. The cybersecurity market is expected to grow 258% into a massive $418b industry by 2028.

Between the media spotlight, anticipated growth and possible government backing, cybersecurity companies are placed in a position to benefit. Since Colonial Pipeline paid the ransom…

• NortonLifeLock (NASDAQ:NLOK), one of America’s oldest cybersecurity companies, is up 37%.
• Zscaler (NASDAQ:ZS), which reported strong sales numbers on May 25, is up 20%.

The ransomware threats have become so dire that Christopher Wray, the director of the FBI, compared the security threat to 9/11 – making cybersecurity one of the most important spaces to watch moving forward.

Investors: Who’s going to save the day? Cybersecurity stocks

Despite all the news on hacks, cybersecurity stocks stayed relatively flat in 2021:

• The First Trust Cybersecurity ETF (NASDAQ:CIBR), one of the biggest ETFs in the cybersecurity space, remains still.
• Compared to other sectors, cybersecurity stocks have higher growth expectations, making them more expensive.
• Cybersecurity companies like Crowdstrike (NASDAQ:CRWD) and Zscaler are among the priciest but fastest-growing companies on BVP’s cloud software index.

With the incoming support form Biden, analysts are forecasting some cybersecurity stocks to rise up to 79% in the next year. According to analyst estimates from FactSet (via Marketwatch), these cybersecurity stocks have the highest upside potential:

• Sumo Logic (NASDAQ:SUMO), LiveRamp (NYSE:RAMP) and Cognyte Software (NASDAQ:CGNT).