Cyber Security Investments For 2012

by: Investment U

by Chris Matthai

Individuals, businesses and governments are under attack… cyber attack. Collectively, we’ve never faced as many online threats as we do today. Why is so much hacking happening now? The answer is simple: More valuable information is stored online now than ever before and – at the same time – many organizations’ cyber security measures are still not up to snuff. And, unfortunately, our international competitors are taking full advantage of these shortcomings.

An Onslaught of Foreign Intrusions

According to a recent U.S. government report from the Office of the National Counterintelligence Executive, government agencies and private companies are still failing to shield their networks from foreign hackers and illicit programmers.

But the surprise revelation was that the report pointed the finger directly at China and Russia as the leading perpetrators of cyber-espionage in the United States, citing repeated efforts to target trade secrets and other sensitive data. But it didn’t stop there. It claimed the pace of cyber-espionage is accelerating.

At risk is an estimated $398 billion in U.S. spending on research and development.

Hackers and “black hat” programmers are pursuing sensitive information from a broad array of U.S. agencies and industries, including defense, pharmaceuticals, information technology, alternative energy and advanced materials, according to the report. The assessment drew on 2009 through 2011 data from at least 13 agencies, including the CIA and the FBI. U.S. corporations and computer security specialists have confirmed an “onslaught” of network intrusions originating from internet protocol addresses in China and Russia. In addition, over the last two years, the number and sophistication of those attacks is on the uptrend.

However, the report went on to indicate the technical difficulties in determining whether such attacks were state-sponsored. Needless to say, government spokespeople from both China and Russia denied any state-sponsored involvement.

The unreported conclusion - for better or worse, the country of origin, the number and the sophistication of cyber-attacks can all be determined. But as for eliminating or preventing cyber-crime, forget about it, it isn’t going to happen. For government, businesses and individuals, the only option is to fully protect your data.

Who Do You Call?

The release of this damaging report comes at a particularly inopportune time for the Federal government, which is in the midst of trying to help its workforce become more productive by approving additional mobile devices and specifically addressing employees’ requests for an alternative to Research In Motion (RIMM) smartphones.

RIMM has been the government’s main smartphone provider since 2001, with security a major selling point. RIMM has a lot of the security controls – encrypted servers, etc. – already built in that allow agencies to control the device and access to data, unlike devices produced by Apple (Nasdaq: AAPL) or other manufacturers.

But now, several federal agencies are exploring the use of Google’s (NASDAQ:GOOG) Android-powered phones, and iPhones and iPads made by Apple. And here’s where the monster opportunity presents itself. Apple, Google and most other potential suppliers would require custom applications to make them secure enough to handle sensitive government data, creating a potential profit gusher for any cyber security firms chosen to handle the task.

Standing at the ready are vendors like Cisco Systems (Nasdaq: CSCO), LogMeln (Nasdaq: LOGM), Citrix Systems (Nasdaq: CTXS), Juniper Networks (NYSE: JNPR), Symantec (Nasdaq: SYMC) and Check Point Software (Nasdaq: CHKP) – which all provide software and security to support wireless devices.

Cyber Attacks: The Hackers Keep on Comin’

Due to the increasing number of cyber attacks and the improving sophistication, there’s going to be plenty of business for everyone. Right now, commercial espionage is a larger problem than efforts to penetrate U.S. government computer systems. However, the U.S. government’s move to expand its approved list of mobile devices only increases the need for additional, and highly sophisticated, cyber security.

A likely scenario for the government’s business will be a giant infrastructure contract with the usual cast of characters receiving part of the contract. This would include the large system integrators like Computer Sciences (NYSE: CSC), SAIC, Inc. (NYSE: SAI), Unisys (NYSE: UIS), Hewlett-Packard (NYSE: HPQ) and International Business Machines (NYSE: IBM).

They, in turn, would start filling in all the parts of the contract, including signing on the companies mentioned earlier that specialize in mobile device management and data security. This group includes Citrix, Symantec, Check Point Software, Juniper and others mentioned above. Although the process of following and waiting on government contracts can be a long and drawn out procedure, it certainly appears that the government will be joining the party sooner or later.

Nonetheless, the cyber security business is moving full speed ahead. Protecting critical data is moving up the to-do list of more and more businesses. Just ask Sony (NYSE:SNE), RSA, Citigroup (NYSE:C) and Google – who all suffered high-profile cyber attacks in 2011 – about the cost and damage control required to resolve these embarrassments after the fact.

Put buying some cyber security stocks on your to-do list. We view this as a great growth industry for at least the next five years. But don’t wait – start preparing your portfolio now.

Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.