Computer and Internet Security Stocks Will See Tremendous Growth

Jaiyant is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With Edward Snowden revealing that NSA has been spying upon all of us and the ensuing drama still unfolding in front of us, we must give more attention to actual malicious entities that spy on computers, Internet activity and financial transactions.

A number of rogue software applications, 'Trojans' and viruses, make their way into our devices as we browse unprotected. Of course, anti-virus programs are installed on almost every computer but the increasing security threats posed by these rogue entities highlight the importance of choosing the right anti-virus applications.

In this article, I shall discuss the 3 most important companies behind anti-virus programs, which will prove to be alternative investment options. The big players in this department are Intel (NASDAQ: INTC), which sells McAfee, AVG Technologies (NYSE: AVG) and Symantec (NASDAQ: SYMC), which sells Norton products. All three companies have a great future in the anti-virus market, and considering the number of Internet-related security threats that are on the rise, one can only imagine how big the market is going to get.

Intel’s McAfee continues to build consumer base

McAfee is one of the biggest names in the anti-virus arena. The American security software firm is a wholly owned subsidiary of Intel. It is also the world's largest dedicated security technology firm and a lot of its customers are corporate. The company offers both corporate and consumer solutions for a variety of threats including but not limited to Trojans, spyware, rootkits, viruses and browsing threats. Intel bought McAfee for $7.68 billion and the subsidiary has continued to acquire smaller security companies.

McAfee acquired ValidEdge sandboxing technology in February 2013 and began a tender offer for Stonesoft Oyj, for a price of $389 million. McAfee will continue to grow and acquire new technologies in order to protect users from ever growing threats. Intel currently trades at $24 and is currently inching ahead into the overvalued territory, with a PEG ratio of 1.18. Its varied product and service offerings have ensured that its profitability is very high, with a profit margin of 19.45% and an operating margin of 25.18%. However, these varied products and services may also cause a 'dilution' of any profits accumulated from one of its many portfolios.

AVG free and premium malware removal programs

AVG Technologies, which was formerly known as Grisoft, is a Czech internet security firm with offices in Europe and the United States. It offers a range of security products for home, business and mobile users. Unlike many of its competitors, it offers free and premium editions. The premium editions need to be renewed each year. AVG partnered with MokaFive in 2010 to add desktop virtualization solutions. AVG is also known for providing malware security to the Opera browser, which is used by more than 300 million people worldwide.

The company is unique because it offers fully functioning freeware and many people continue to purchase premium versions of the software in order to gain other benefits. AVG currently has a market cap of more than $1 billion and trades at $19. With a profit margin of 16% and an operating margin of 26%, it is a decent bet among internet and computer security stocks. What I like about AVG is, it focuses on anti-virus and security products unlike Intel, which sells McAfee range as one of its many products.

Symantec’s widely used Norton antivirus products

Symantec Corporation's most famous product is its Norton range of anti-virus and malware removal programs. It is a Fortune 500 company that not only is a leader of the antivirus industry but also excels in the Certificate Authority industry. 

Digital certificates issued by a Certificate Authority attest signatures, insignia, ownership and assertions made by entities. Symantec bought the easily recognizable SSL, Verisign Identity Protection, Public Key Infrastructure (PKI) and Verisign Trust Seal for $1.28 billion from VeriSign. This helped Symantec to boost its position as a certificate authority as well. Most commonly, these certificates are used to certify the authenticity of eCommerce websites.

Norton antivirus includes free products that can be used during trial periods. The premium products need to be renewed every year and focus on all kinds of Internet and computer security threats. Two-thirds of Symantec's revenue is generated from software programs designed for enterprises and large corporations.

Norton products have often been deemed to be processor-heavy and vulnerable to newer threats. Symantec's security products detected only one of the 45 malware programs installed by Chinese hackers on The New York Times' computer network. Symantec's customer service is rated 'Disappointing' by the Customer Service Scoreboard.

Nevertheless, Symantec is one of the largest companies in its industry and has a market cap of almost $16 billion. With a PEG ratio of 1.26, the company is inching towards the overvalued territory as well. However, its profitability is impressive with a profit margin of 11% and an operating margin of 18%.

Bottom Line

It is difficult to choose between any of these three computer security stocks. Each has its list of advantages and disadvantages and all the 3 of them have their faithful consumers. However, I like companies that focus on certain core activities. While Intel and Symantec are both great companies which can be long term investment options, AVG seems like a better bet, when it comes to focusing on antivirus and security related products and services. With its freemium model, AVG will continue to be one of the most preferred antivirus software providers. Among security stocks, AVG will prove to be a good long term investment.


Fool contributor Jaiyant Cavale holds no financial position in any companies mentioned here.

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