Exclusive: How COVID impacted cybersecurity stocks

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As the COVID-19 pandemic swept the world into uncertainty, the stock market responded to the unprecedented circumstances. One detailed study of activity from January-April 2020 showed that stock market returns declined as confirmed cases rose.

The researchers also found that showed most prominently in the initial days following a confirmed outbreak, then again from 40-60 days after that time.

However, the outlook is not wholly bleak for investors. More specifically, those who invest in cybersecurity stocks could discover that was a sagacious decision.

Remote work situations drive the need for tighter cybersecurity

Businesses did not only begin needing cybersecurity solutions once the pandemic hit. However, since the public health threat led many employers to let or require that people work from home if possible, internet security became even more of a hot topic.

A recent poll found that 33% of the United States’ workforce is in remote roles all the time. Then, a quarter of respondents said they work that way sometimes. Although the survey also found that 41% never work remotely, the statistics show that working from home is rapidly becoming the norm — and COVID-19 had a major part in facilitating that shift.

Stock market analyst, Matthew Carr pointed to some recent evidence of cybersecurity stocks doing well. He cited Okta, SailPoint Technologies and Tenable as each returning better than 40% each this year. 

Carr also brought up how some people will never work from traditional offices again. That reality means that corporate leaders have to shift their cybersecurity plans to go outside the workplace and apply to tasks done at home.

Paul De Sisto, Executive Vice President and Managing Director of M&R Capital, had a similar viewpoint. “Research is saying that we’re going to have 8.7% growth this year to US$124 billion just in this one industry [of cybersecurity],” he said. De Sisto continued: “Everything that is going on indicates that this business, which had been growing rapidly, is going to accelerate going forward.”

Analysts see potential in companies that offer secure access service edge solutions

Seasoned investors know that it often makes sense to invest in particular industries that appear poised for growth. That’s why some companies offer proprietary model portfolios featuring the sectors and industries tapped to have an outsized chance of performing well over numerous timeframes. Identifying the promising ones early in their growth phases can lead to favourable results for investors.

Some investment experts believe that particular technologies within the cybersecurity industry will do exceptionally well across a relatively short period. Cybersecurity professionals created a new umbrella term for the infrastructure necessary for distributed workers and branch offices. They call it secure access service edge — or SASE.

Deutsche Bank analyst, Patrick Coville recently wrote a note to clients, saying: “SASE tools, which act as a cloud-based intermediary for traffic regardless of user location, are a secure alternative for remote working. We expect SASE to become one of the most important cybersecurity products in the ‘mobile cloud’ era and don’t think this is widely understood.”

One California-based company in particular caught Coville’s attention: “Competitively, Zscaler looks to have positioned itself to be a leader in SASE, despite increased competition from the release of solutions from Palo Alto Networks.”

Jonathan Ho, an analyst at William Blair, also has high hopes for SASE. He wrote a client note confirming: “We believe SASE will represent a key evolutionary shift in the network security market, but we expect most organisations will start by using SASE for branch and mobile worker use-cases.”

Cybersecurity companies getting a renewed surge of attention

The trends mentioned here caused a broader change whereby some stock market professionals listed cybersecurity companies among those considered smart investment choices.

Keith Noonan, a contributor at The Motley Fool, chose Cloudflare as a stock to watch. That company’s offerings span beyond cybersecurity, but secure solutions comprise a sizeable chunk of its business.

Noonan revealed: “I started buying Cloudflare shares in June because cybersecurity is poised for a tremendous demand swell over the next decade and the company’s leading positions in web-based security and content delivery services point to huge growth potential. A belief that Cloudflare’s strengths in these categories would create foundations for launching new services was another core component of my bullish thesis.”

While explaining his investment choices, Noonan also stated the company’s new Cloudflare One software caused a 40% increase in the stock for October 2020 alone. Another favourable sign for investors is that the company’s current value is about 44 times this year’s expected sales, according to Noonan.

More investors taking notice

This kind of coverage in publications that investors trust could cause more of them to look more closely at cybersecurity companies overall. They could start considering them for investment, which would bode well for those organisations’ future successes.

Devin Partida is a technology writer and the Editor-in-Chief of the digital magazine, ReHack.com. To read more from Devin, check out the site.

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