The third quarter of 2015 took technology stocks on a rollercoaster ride, especially those focused on cybersecurity. Even some of highest-quality names in the space sold off hard, as their strong performance earlier in the year and lofty valuations made them ripe for profit taking by investors looking to offset losses elsewhere in their portfolios.
Many cybersecurity stocks still trade at elevated valuations, despite the recent selloff. Nevertheless, we remain bullish on tech stocks that fit our strategy for the software industry writ large (see Software Update 2.0) and specific security-focused themes that meet our criteria (see Two for the Money).
There’s a lot of noise from the growing number of companies that claim to protect information technology (IT) assets; investors must focus on the names that can actually deliver on these promises, turn a profit and grow their earnings.
Here’s a quick review of the bigger-picture trends that make us bullish on the cybersecurity industry.
Breaches and other security threats will continue, if not worsen. According to the ID Theft Center, organizations have announced almost 600 security breaches this year. These attacks exposed more than 175 million individual names and their corresponding social security number, driver’s license number, medical record or financial r