Cyber Security means different things to different people: for individuals, it can simply mean privacy; for companies it can mean the protection of sensitive information from malicious attacks or the compliance with regulatory requirements; for governments, it can mean the protection of state secrets from hackers or terrorists or espionage.

Ironically, the government is on both sides of the fence because on the one hand it needs to protect its own information and on the other, it needs to dig into other people’s information in the interest of national security or the furtherance of economic objectives.

But the nature of security is such that if anyone (including the government) can crack through your defenses, there’s always the fear that the intrusion won’t be the only one.

So in a very broad sense, cyber security refers to the security measures taken by individuals, firms and the government to ensure that data remains in the state intended and accessible to the people intended, including actions taken and policies adopted to protect the data itself as well as the devices, servers, buildings, etc. that house it.

Building the Defense

Just as a building for important people or valuables can be protected in various ways and using different strategies, data needs to be similarly protected.

Castles used to be surrounded with a high wall and moat that could control the spread of fire and keep intruders at bay. Similarly, a firewall was earlier considered sufficient protection for data against intrusions.

But with technological progress, the sophistication of attacks in both the physical and virtual worlds has increased manifold. So today, there is the need to plug every hole: the pathways (networks) have to be monitored, entry points secured (access/identity verification) and even the people (data) entering/exiting the protected zone from other buildings (end point anti-virus protection) must be disguised (encryption). 

Also, there is a growing perception that selecting multiple vendors to build different layers of security is important, so attackers will take longer cracking through each layer allowing the time required to modify and update security systems, thus taking out malware before any damage is done.

Top Trends Impacting the Segment

The way we create, use and share information has changed over the years, increasing the need for security measures.

Cloud Computing: It has been widely recognized that the sharing of infrastructure and resources as well as the related costs for their maintenance, makes economic sense for companies. So there is an ongoing trend toward cloud computing with companies embracing the concept wholly (public cloud) or partially (private or hybrid cloud). Because of the complexities involved, this results in numerous access points, networks, end points and so forth, each of which has security needs.

IoT/Mobile Computing: Coordinating field operations with the office and sharing of real time data with field personnel has always been difficult in the traditional corporate structure. This led to the portability of computing systems. But as these systems became lighter, more energy efficient and more powerful, there was the increased propensity for doing routine and time-consuming activity (eg. mail checking) on the go.

As companies go increasingly mobile, the number of devices used continues to increase. To further complicate things, we now also have Internet of Things (IoT) devices for various activities (personal information tracking, home automation, factory automation, etc), which further increase the number of devices/end points in the network and the corresponding need for their security.  

eCommerce: With so many individuals now connected to the Internet, brands want to maximize on the opportunity to target them with goods and services. So they are building out their own websites and infrastructures to facilitate advertising and sales online. Therefore, there are growing volumes of information pertaining to retailers and their patrons, all of which needs to be secured.   

New Payment Systems: In order to facilitate online purchases, there needs to be suitably secure payment systems so customer payment information remains private. Payment technologies like BLE pass on certain customer information to brands to facilitate in-store purchases. NFC is another payment technology that processes contact-less payment information through mobile devices to facilitate in-store purchases. This is vital information, which if intercepted could lead to financial loss.    

Social Networks/Search Engines: Internet users are in the habit of sharing personal information or displaying preferences on social networks like Facebook (FB) and Twitter (TWTR), or when looking for information on search engines like Google (GOOG) or Microsoft’s (MSFT) Bing or even through mail and messenger. This information is collected and sorted to create customer profiles. While the rationale for this data collection is to serve more relevant ads, it nonetheless exposes users to unsolicited publicity if the information is leaked. So the protection of this data is of vital importance.

Increased Electronic Content In Key Sectors: The use of electronics/connectivity of products in auto, air and industrial sectors is on the rise. This basically means an increase in the amount of information as well as the number of end points in networks, both of which need to be secured.

So it’s not at all surprising that the number, scale, scope and sophistication of cyber attacks have increased greatly in the last few years.  The increased publicity has also led to increased demand for cyber security products and services.

Top Players

According to IDC, the security appliance market grew 7.5% year over year to $2.3 billion in the first quarter of 2015. Unit shipments grew 9.4%. Notable regions driving the strength were the U.S. and Western Europe with Latin America and Asia also growing and Central and Eastern Europe and Middle East and Africa (CEMA) declining steeply.

Cisco (CSCO - Analyst Report) remains in the leadership position with a 17.6% share in the first quarter of 2015, followed by Check Point Software Ltd.(CHKP) with 13.4%, Palo Alto Networks (PANW) with 9.5%, Fortinet (FTNT - Snapshot Report) with 8.3%, Blue Coat with 4.7% and Others 46.5%. But the strongest growth came from Palo Alto (up 54.3% year over year), followed by Fortinet (up 27.4%), Check Point (up 12.2%) and Cisco (up 8.8%). Blue Coat was roughly flat while others declined 2.2%.

All of the leading players have benefited from the increased demand for unified threat management (UTM) systems. This is a term coined by IDC to denote a security product category that integrates a number of security features into a single appliance. UTM typically includes firewalls, virtual private networks (VPN), intrusion detection systems, intrusion prevention systems (IPS), anti-malware, anti-virus, internet protocol security, web filtering, anti-spam, application control and other network security products.

Two factors are driving UTM demand. The first is the growing number of small and medium businesses (SMBs) taking to cloud computing. These companies often don’t have the resources (finance and expertise) to deal with the complications of security management and regulatory compliance, so they prefer the simplicity of UTM. The second is the fact that hackers attack SMBs more often because they are easier to crack.

According to latest available data from Tech Navio, the UTM market will grow at a 16.52% CAGR from 2013 through 2018. 

4 Stocks With Promise

Since this is a relatively nascent and evolving market, stocks are usually subject to an inordinate reaction to earnings results. But growth stocks can have short-term issues that get ironed out in the longer run. So here we are using Zacks proprietary technology to select some stocks that should do well over the next 1-3 months.

Juniper Networks (JNPR - Analyst Report)

Juniper is a networking company like Cisco with a traditional business focused on routers and switches. But the company also sells security software such as its SRX series, which are secure gateways for data centers, campuses and branches. Its Junos network management platform also includes security.

This Zacks Rank #1 (Strong Buy) company posted an EPS surprise of 32.3% in the last quarter and the Zacks Consensus Estimates for 2015 is up 16.5%.

Palo Alto Networks (PANW)

Palo Alto offers an enterprise security platform that encompasses a firewall on the one hand for applications, users and content to withstand network-based cyber attacks and on the other, a Threat Protection Cloud that controls intelligence and automates delivery of threat prevention programs.

This Zacks Rank #2 (Buy) company will report fourth-quarter results next month. Palo Alto’s long-term growth prospects look extremely bright as it is expected to grow earnings 33.4% over the next five years, which is nearly double the rate expected of the industry.

Shares have been under pressure over the past month because of insiders taking in some gains but are still up nearly 10% from where they were three months ago.

MicroStrategy Inc. (MSTR - Snapshot Report)

MicroStrategy produces and sells analytics, mobile and security software to enterprises. Its security offerings focus on authentication, cybersecurity, access management and resource authorization for businesses, universities, associations, governments and other organizations.

This Zacks Rank #1 company reported first quarter earnings that were 40.3% ahead of the Zacks Consensus Estimate. Forward estimates for 2015 are up 15.2%. The shares climbed 17.8% over the past month.

Xplore Technologies Corp. (XPLR - Snapshot Report)

Xplore makes hardy mobile computing devices that can withstand extremities of temperatures, vibrations, rain, dust and dirt for public safety, utility, telecommunications, field service, warehousing logistics, transportation, oil and gas production, manufacturing, route delivery, military and homeland security markets.

This Zacks Rank #1 company reported a positive surprise of 113.33% in the last quarter and estimates have jumped 118.2% since then. The promise of continued momentum sent share prices up over 9% since.