The cost of cybercrime is expected to hit $2.1 trillion in 2019, according to Juniper Research. By 2021, that figure will surpass $6 trillion, according to security consultancy The Herjavec Group.
The defense against cyber crime and wide-scale attacks will cost hundreds of billions of dollars. In 2016, research firm Research and Markets projected that spending on cybersecurity would rise from roughly $122.45 billion in 2016 to $202.36 billion by 2021. That is a compound annual growth rate of 10.6%.
Based on recent developments, these figures could be conservative. As sophistication in attacks and response technologies advance, this could be a difficult industry to navigate for investors in the new century.
This month, we sat down with Michael Robinson, author of “Strategic Tech Investor” and the “Nova-X Report,” two financial research products that tap into growth in the technology markets, including artificial intelligence, biopharmaceuticals and more. Robinson had recommended his readership invest in Nvidia Corp. (NVDA) in October 2015 shortly before the stock began its 250% surge during the next 15 months.
For insight on how to invest in cybersecurity, Robinson outlined three stock market plays for 2017.
Robinson first recommends that investors consider a small-cap stock that focuses on a specialized area of the industry. Next, Robinson recommends a large-cap company that has a large cybersecurity component but also captures growth in other must-own industries where private and public spending is expected to surge in the years ahead. Finally, he recommends an ETF that captures the hundreds of billions in industry growth that is expected.
The recent hacks of the Democratic National Committee and Clinton campaign chair John Podesta were due to e-mail phishing scams. The emphasis on specialization in these fields is critical in the years ahead because some areas will grow faster than others as events shake out. For investors looking to profit from increased attention on how to reduce cybercrime tied to e-mail, Robinson recommends small-cap specialist Zix Corporation (ZIXI). This small-cap company provides e-mail encryption, data loss prevention and bring-your-own-device (BYOD) security.
“[E-mail security] is an emerging sector that Allied Market Research says will grow by 14% per year through 2020 when it will be worth $2.2 billion,” Robinson said in an October research note to investors. “Zix has been selling one of the leading software encryption packages for nearly two decades and has a massive installed base of 13,500 clients, hosting more than 50 million email addresses.”
Second, a stealth large-cap stock in this industry is Raytheon Co. (RTN). With a $42.97 billion market capitalization the company is a cyber and cloud-computing play as the Trump administration kicks off.
Robinson first described the stock as a stealth cyber play in September 2015 given that it is one of the nation’s top defense contractors. Since that recommendation, shares have rallied 37.62%.
Looking forward, he still likes the company given that Raytheon has increased investment in its cyber division to protect government agencies and other large organizations. As the U.S. strengthens its aircraft, radar and missile-control systems, and even its nuclear capacity, these components must have cyber defenses.
Finally, it’s a good time to consider an ETF that captures the growth of the broader cybersecurity industry. Michael recommends the PureFunds ISE Cyber Security ETF (HACK) as a pure play on the growing cybersecurity market.
“HACK is a terrific way to get broad diversification in a narrow target environment. It was the first ETF created to track the cybersecurity industry, and it now has 35 companies in the fund,” he says. “The ETF gives you access to all the leaders, all the innovators in the cybersecurity sector. It’s a strategy that gives you a stake in the upside of the industry and diffuses the downside.”
The ETF isn’t quite back to its 52-week high, which makes it an intriguing play (see “Hacking into cyber profits,” below). With Trump’s presidency in focus, Robinson believes there is plenty of room for HACK to run.