The news that financial giants like Citi had been hit in a multi-year hacking scheme probably didn’t surprise anyone. However, it shows that the United States needs to get serious about this threat. That should boost specialists like Radware Ltd. (NASDAQ:RDWR) and Fortinet Inc (NASDAQ:FTNT), but also military players like Lockheed Martin Corporation (NYSE:LMT).
Big Names
Although this scheme appears to have been about money, it’s only one of many large scale incursions. All of the cyber attacks taking place aren’t as “innocent” as this one.
A Notable Buy
Attacks like this one help explain why Cisco just agreed to buy Sourcefire, Inc. (NASDAQ:FIRE) for $2.7 billion, a nearly 30% premium. Sourcefire makes physical devices that monitor networks for security threats. Its most recent offerings specifically look for malware on networks and in mobile settings. That will be a nice addition for Cisco, which had fallen behind in the computer protection space.
Although Sourcefire, Inc. (NASDAQ:FIRE)’s top line has been growing steadily for years, shareholders should probably sell now to lock in the quick merger gain. There’s more downside risk of the deal falling apart than upside potential at this point.
Cisco, meanwhile, should quickly become a more competitive player in an increasingly important segment of the market. Although sales picked up after dipping in 2009, earnings and profit margins have been more varied. And the shares haven’t really gone anywhere since the 2000 tech bust.
The Sourcefire, Inc. (NASDAQ:FIRE) deal isn’t going to change Cisco’s business overnight, but it is a step in the right direction and improves the company’s position in an increasingly important segment. Growth and income investors should take a look at this 2.6% yielder, noting that its price to earnings ratio of about 15 is still a little below its five year average.
More to Come?
Radware Ltd. (NASDAQ:RDWR) and Fortinet Inc (NASDAQ:FTNT) are two other players in the space that could get scooped up. Radware’s focus is on denial of service attacks, and Fortinet provides an “all-in-one” cyber protection system called FortiGate. Fortinet is about twice the size of Sourcefire, Inc. (NASDAQ:FIRE), and Radware is about one-fifth the size of Fortinet.
Both companies saw top line weakness in the first quarter take their shares lower. That, however, comes after years of solid sales growth. It’s likely that sales will again push higher in the coming quarters and years as cyber attacks become more and more prevalent and destructive.
Either of these companies could find themselves an acquisition target, though Radware Ltd. (NASDAQ:RDWR) would be the easier of the two to digest. Although sales have grown steadily over the past decade, the top line was flat year over year in the first and second quarters. Earnings, meanwhile, were down about 35% or so year over year in each quarter, too. Still, Radware could be a good buy for aggressive investors since the shares are still trading about where they were after the first quarter earnings announcement.
Military Grade
Lockheed Martin Corporation (NYSE:LMT), meanwhile, has been providing IT services to the federal government for nearly two decades. It’s partnered with the Department of Defense Cyber Crime Center, and its Wireless Cyber Security Center allows for the safe testing of “wireless communications systems in a classified environment.” Clearly this military industrial giant is well situated for the cyber war.
Despite constant pressure to reduce the size of the military, the company’s top line has grown steadily over the past decade. While the bottom line has been less consistent, Lockheed Martin Corporation (NYSE:LMT) has earned more than $7 a share for six consecutive years. In 2012, earnings came in at over $8 a share. It’s no wonder the stock has been heading higher of late.
With an around 3.7% yield and a price to earnings ratio about 33% above its five year average, Lockheed Martin Corporation (NYSE:LMT) is hardly cheap at current levels. Still, the PE is reasonable at about 14 since the shares had been hampered for several years by budget cut concerns. At the end of the day, there could still be more upside potential for those focusing on growth and income.
Positioning for the Future
Cyber attacks are getting bigger, more damaging, and increasingly complex. That’s going to make fighting these crimes a growing business opportunity for years to come. Cisco is interested enough in the space to bulk up with the acquisition of Sourcefire, Inc. (NASDAQ:FIRE), making the company a good option for growth and income investors as it works to return to growth mode. Lockheed Martin Corporation (NYSE:LMT) is another growth and income option with military grade technology to offer, though it isn’t as cheaply priced. Fortinet Inc (NASDAQ:FTNT) and Radware Ltd. (NASDAQ:RDWR), meanwhile, could find themselves takeover bait as more big fish try to get bigger.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems (NASDAQ:CSCO) and Sourcefire. The Motley Fool owns shares of Lockheed Martin.
The article It’s Time To Get Serious About The Cyber Threat originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
