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Cybersecurity Stocks to Benefit as WaanaCry Hits Worldwide


A massive ransomware attack shocked the world last Friday which halted daily work at several companies, government offices and even hospitals across the globe. According to a report from cybersecurity firm, FireEye Inc. FEYE, the attack which persisted throughout the whole weekend, infected over 200,000 computers in at least 150 countries across the Americas, Europe, Russia and Asia over the weekend.

Known as WannaCrypt or WannaCry, the malicious software reportedly seizes the control of computers and encrypted files with a password which only hackers have access to. After that, victims were asked to pay ransom in order to regain control of their systems. The hackers demanded ransom in bitcoin.

Citing a report of Avast Software BV, Bloomberg revealed that heavy concentration of infections has been seen in Russia and Ukraine. Apart from this, about 16 National Health Service (NHS) organizations in the UK, some of Renault factories and Nissan’s car plant in Sunderland were hit by this attack.

Operations of various other companies, like in the U.S. FedEx Corp. FDX, in Germany Deutsche Bahn, China’s China National Petroleum Corp., in Japan Hitachi Ltd., and many others across the globe were adversely affected by this ransomware attack.

The most notable thing in this whole attack was that the hackers were able to infect only those computers which have older versions of Microsoft’s MSFT operating systems (OS) – Windows XP, Windows 8 and Windows Server 2003. Notably, Microsoft stopped providing support to its older OS in the latter half of 2016, due to which these systems were not upgraded with Microsoft’s new security patches.

This made the older OS more vulnerable and hackers took the advantage of the same. However, Microsoft, taking a serious action on this issue, stated it will be releasing a security patch for its older OS.

According to Bloomberg, Aleks Gostev – chief cybersecurity expert for Kaspersky Labs – is suspecting some Russian language cybercriminals behind this attack. Notably, Russian hackers were in the limelight throughout last year, either for their supposed involvement in the Democratic National Convention (DNC) leak or The World Anti-Doping Agency (WADA) data breach.

Cybersecurity Stocks Gained

The latest cyber attack proved that government or private – most organizations across the whole world lack proper security measures.

But believe it or not, there does appear to be a positive side to this episode. A cyber attack is good news for cyber security companies, because it increases the chances of security-related purchases by both companies and governments. Hence, investors flock to these shares, sending up share prices.

This time was no different – Barracuda Networks CUDA and FireEye were the top gainers – witnessing 3% and 2.3% rise, respectively. This was followed by Check Point Software CHKP and Palo Alto Networks Inc. PANW gaining a respective 1.7% and 1.1%. Another cybersecurity company, Fortinet Inc. FTNT, also marginally gained last Friday.

We expect to see this upswing in share prices of the Cybersecurity stocks to continue during today’s trading session as well.

Computer and Technology Sector 5YR % Return

Computer and Technology Sector 5YR % Return

Fresh Boost for Security Stocks

The silver lining to this whole episode will be rise in demand for security-related products among companies and governments, in our opinion. We believe that it could bring cybersecurity stocks back into the limelight, which witnessed a dismal run in 2015. Though the cybersecurity stocks seem to be recovering since April last year, most stocks are still trading very low to their all-time highs.

It should be noted that the financial well-being, brand image and reputation of enterprises, and governments are always exposed to the risk of cyber threats. Consequently, cybersecurity has become a mission-critical, high-profile requirement.

Clearly, cases of such attacks drive the need to beef up cyber safety measures, in turn increasing demand for the services offered by cybersecurity companies.

Furthermore, with rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.

Moreover, various independent research firms forecast strong demand ahead. According to a Markets and Markets report, worldwide cybersecurity spending will reach $101 billion in 2018 and $170 billion by 2020. Gartner had earlier mentioned that IT security spending peaked to $75 billion in 2015.

Bottom Line

Considering the aforementioned factors, it makes sense to invest in this hot industry group as cybersecurity players are likely to witness sturdy growth, moving ahead. Some better-ranked stocks in the cybersecurity space are Fortinet, VeriSign (VRSN) and VASCO Data Security, all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apart from this, we believe that the recent attack will also benefit Microsoft as it may see a huge demand from organizations and individuals for its Windows 10 OS. The stock currently carries a Zacks Rank #3 (Hold).

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