The Cyber War Expands
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Untied States is looking to help allies fend off cyber attacks. That's a good thing for this country and a good thing for companies in the cyber defense space.
Not just a U.S. Issue
While attacks against domestic computers make the biggest headlines in this country, it's important to remember that the cyber war is a global issue. That fact isn't lost on the U.S. government, which, according to The New York Times, is looking to help allies in the Middle East and Asia bolster their cyber defenses.
The impetus behind this push seems to be a pair of attacks by rogue nations. Iran managed to cripple 30,000 computers at Saudi Arabia’s largest, state-controlled oil company. That attack didn't cause much damage, but was a serious wake-up call. North Korea, meanwhile, recently managed to shutter some South Korean banks for a few days with an attack.
Some Names to Look at
The support being offered to allies is likely to be training based. Thus, implementing best practices using off-the-shelf technology is going to be the big push. That means companies like Radware (NASDAQ: RDWR), Sourcefire (NASDAQ: FIRE), and Fortinet (NASDAQ: FTNT) could benefit from increased foreign demand.
A Simple, but Damaging Attack
Radware is an expert in denial of service attacks. In such an attack, a computer system is flooded with information requests to the point where it pretty much has no choice but to shut down. That may sound like little more than an inconvenience to users, but it can be incredibly costly for a company or country. Imagine such an attack taking place against a government agency.
The company's Network Security division sells physical devices that monitor network activity looking for malicious or unwanted behavior. The devices react to such threats “in real-time” to stop the attack.
The company's sales have grown steadily over the last ten years. That said, first quarter results were flat year over year and, more concerning, down about 10% sequentially from the fourth quarter. The stock traded notably lower on the news.
The growing threat of cyber attacks and the U.S. effort to spread the gospel on stopping such attacks before they start should support continued long-term sales growth. And, despite the weak quarter, the company's bottom line remained in the black, showcasing the strength of the business. The sell off could be a good buying opportunity.
Sourcefire makes devices that monitor networks for security threats, including recently introduced technology that specifically looks for malware in networks and, importantly, in the high-growth mobile space.
Malware is software that gets into a network and can delete files, bring a network down, or provide an opening for hackers. Such software was what Iran likely used to infect the 30,000 computers at the Saudi oil company. If that attack had been more effective, it could have caused a major disruption in the world's oil supply.
Sourcefire's sales have been growing steadily, however the company only turned profitable in 2009 after a string of red ink. It has made money every year since. Like Radware, the company's first quarter sales were down sequentially from the fourth quarter. However, they were still up year over year. The shares fell on the news, though not as steeply as Radware's shares, making now a good time to consider a purchase.
Protection in a Box
Fortinet's lead product is FortiGate and a collection of management tools that support that product. The allure here is that FortiGate provides an integrated portfolio of protection tools in a single package. That includes firewall, virtual private network, antivirus, intrusion prevention, web filtering, and antispam tools, among others. It is something of a one-stop-shop.
Fortinet's top line was up year over year, but was sequentially lower between the fourth quarter of 2011 and the first quarter of 2012. That said, the top line has headed steadily higher over the last few years. That's a positive sign despite relatively stagnant, though still solid, earnings. Like the other two companies here, the weak first quarter depressed the stock price and created a potential buying opportunity.
Helping our Friends
The U.S. government is making a point to help our friends fend off common cyber enemies. That said, help is only going to go so far and likely to focus on training about the best ways to detect and defend against attacks. That likely means civilian level protection, not military grade attack capabilities. In the civilian space, Radware, Sourcefire, and Fortinet are all important and still growing players. And recent price weakness at each company could present a good entry point for long-term investors.
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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Sourcefire. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!