News reports have been filled with stories about the return of China’s military backed hackers. That’s clearly bad news, but it could be good news for companies that protect against such threats. Three less-obvious companies that could benefit from this increasing risk are Symantec Corporation (NASDAQ:SYMC), Intel Corporation (NASDAQ:INTC), and Lockheed Martin Corporation (NYSE:LMT).
What’s Been Going Down
In a recent New York Times article, the paper highlights an uptick in cyber-attacks after a brief period of quite. Some of the attacks in the past few years have included taking “aim at companies with access to the nation’s power grid” and hacking a company that “keeps detailed blueprints on more than half the oil and gas pipelines in North America.” Clearly, this is a big threat.
Obvious and not so Obvious
There are companies dedicated to protecting corporations and governments from attacks, including Radware Ltd. (NASDAQ:RDWR), Sourcefire, Inc. (NASDAQ:FIRE), and Fortinet Inc (NASDAQ:FTNT). However, there are some less obvious choices, too. Since the trio above are rather small companies, it may make sense for more conservative investors to look at more diversified options to gain exposure to the cyber protection space.
Protecting the Little Guy
Symantec Corporation (NASDAQ:SYMC) sells Norton Antivirus software. That’s largely a consumer facing product, but in a world where the threat of hacking attacks is front page news, sales are likely to pick up across the board. So, Chinese hacking should help Symantec, too.
The interesting thing about the company, however, is that it is a turnaround play. Previous management used acquisitions as a way to build the company. However, that tactic strained management and dragged down performance. For example, profit margins have fallen from the high twenties and early thirties to the mid-teens.
That’s not a good trend and one that has left the shares trading at what Kevin O’Brien, co-manager of Prospector Opportunity Fund, believes is a healthy discount to its historic P/E multiples. A new CEO and plans to return value to shareholders via dividend payments and stock buybacks, however, suggest improvement on the corporate and stock levels could be in the cards.
The Military
Although the Times suggests that Lockheed Martin Corporation (NYSE:LMT)’s own computer system was hacked, the broadly diversified military contractor has an impressive lineup of cyber war products and services. Indeed, Lockheed Martin Corporation (NYSE:LMT) has been thinking about and dealing with cyber issues for a long time.
Lockheed Martin Corporation (NYSE:LMT) reports that is has been the number one provider of information technology services to the federal government for the last 18 years. It is partnered with the Department of Defense Cyber Crime Center and has a unique Wireless Cyber Security Center that allows for the safe testing of “wireless communications systems in a classified environment.” Sales of such products and services to the military are support enough, but these capabilities are also useful for companies and governments.
Lockheed Martin Corporation (NYSE:LMT)’s shares have run up nicely over the last few months, but still yield over 4%. For more conservative investors looking for a way to play the uptick in cyber-attacks, this could be a well-diversified option.
Integration
Intel bought McAfee, a maker of computer protection software that competes with Symantec, for nearly $8 billion in 2010. The idea was to increase its exposure to the software business. That hasn’t been such a great deal for Intel Corporation (NASDAQ:INTC) just yet, since its chip business continues to face mobile headwinds. Although the company has been working on mobile chips to support the Android mobile operating system, it is a clear laggard and that fact has taken center stage.
That said, the company’s chips are still dominant players in the personal computer and server spaces. These two areas should provide plenty of support while the company works to enter the mobile space. However, the company continues to work on better chips for computers and servers.
Part of making chips better is including more and more into a single chip. For example, Intel Corporation (NASDAQ:INTC) has been integrating graphics capabilities into its chips. Imagine if it was also able to integrate cyber protection into its chips. Since networks are nothing more than a collection of connected computers that could be a huge win for the company.
This is not a public push right now, since mobile is the hot issue, but it could add some allure to investors willing to bet on a turnaround at this chip giant. Yielding around 4% recently with a solid history of annual dividend increases, investors are being paid to wait for an eventual turnaround.
The Back Way
Investors looking at the cyber threat posed by such countries as China have plenty of ways to get involved. Although the three companies noted above aren’t direct players, they all touch the space in interesting ways.
Intel Corporation (NASDAQ:INTC) is the most obscure, but the company also has a massive business, lots of turnaround potential, and an impressive dividend yield. Symantec Corporation (NASDAQ:SYMC), for its part, is a decent turnaround play that requires little more than improving its operations to work out. The increased concern about cyber issues is just icing on the cake. Lockheed Martin Corporation (NYSE:LMT), meanwhile, would benefit from both a virtual war and helping China’s neighbors bulk up to deal with the threat of a physical war.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Intel and Sourcefire. The Motley Fool owns shares of Intel and Lockheed Martin. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Unique Angles On The China Hacker Problem originally appeared on Fool.com is written by Reuben Brewer.
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