Breaches in Web security are an ever-present danger, growing in scope, frequency, and complexity. Hacking, spamming, malware, viruses, and a plethora of other terms related to attacks on technology infrastructures are commonplace in today’s vocabulary. They reflect threats that have the possibility of not only jeopardizing an individual’s life, through stealing banking, credit card or other personal information, but also to exploit the vulnerabilities of corporations and even undermine national security.
In 2011, there have been a number of high-profile cases where the data of companies such as Citigroup (CITI), EMC (EMC), and Lockheed Martin (LMT) were compromised. In March, security division RSA of data storage provider EMC, which creates its SecureID system, faced a cyber attack. Then in May, Lockheed Martin’s VPN system, which enables employees to remotely access their computers through their SecureID tokens, was hacked. The possible link, though, between these two occurrences, is still unclear. Meanwhile, in June, hackers gained access to the credit card information of hundreds of thousands of Citigroup clients. Attacks on agencies like the International Monetary Fund and the Central Intelligence Agency have also been reported.
As time progresses, we are witnessing more sophisticated attacks and breaches happening on larger scales. The proliferation of mobile computing, fueled by the rising number of smart phones, tablets, notebooks, and laptops, is becoming a popular avenue for cyber attackers. In addition, cloud computing continues to gain prevalence but, since vast amounts of data from multiple businesses are stored on the servers of a single service provider, there is the possibility of a hacker breaking into the system and accessing the information of numerous clients.
Securing these networks and devices may seem like a daunting task. Personal computers typically will have spyware, antivirus protection and a firewall. Meanwhile, corporate networks have to protect information that is vital to the survival of the business and the data of their customers. Furthermore, employees accessing the system can, at most times unknowingly, introduce malicious software that can wreak havoc on the entire network and even shut the system down. Outside of the basic security solutions, these organizations typically need to limit Internet access by employees, provide password management, encrypt information, and authenticate users.
In the area of employee Internet management, Websense (WBSN) has been at the forefront. Over the years, it has expanded beyond this realm, and through internal development and acquisitions, delved into Web and e-mail security and data-loss prevention. A subscription-based business model and a solid suite of products have helped the company increase its revenues at a solid annual rate over the past decade and we believe that it will post record share earnings next year. Fueling this growth will likely be ongoing investments in research & development and a stronger push into emerging economies.
Check Point Software Technologies (CHKP) has been in the business of developing Internet security solutions since 1993. Its products range from firewall, anti-virus, anti-malware and email security solutions, to software that identify and manage access to company information and protect against identity theft. Even in a highly competitive playing field, with rivals such as Juniper, Cisco, and Intel, among many others vying for market share, Check Point continues to capture new business. Over the next 3 to 5 years, we believe the company will likely post solid annual top- and bottom-line results, widen its product portfolio and strengthen its balance sheet.
Investors seeking stability may be interested in Check Point Software, given the stock’s low Beta. Even with the recent volatility in the broader markets, the equity has held up quite well. That said, this issue only possesses modest upside potential out to mid-decade. Websense, on the other hand, is more of a risky play. Its shares fell around 35% in price between July and September. Still, for those willing to shoulder the higher risk, they may be rewarded with a greater payoff, given the recent pullback in price. Both companies hold a healthy share of a growing market, and the protection and securing of the information on computers and in cyberspace is a concern that will continue to affect individuals and all businesses. Thus, entities that maintain a leadership position in the Web security space stand to benefit from increased business and greater profitability.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.