The United States is pressing China to stop hacking U.S. computer systems. China denies it’s doing anything. How long can we play this game before something really bad happens?
Pots and Kettles
The United States and Israel have been accused of using a computer virus known as Stuxnet to target Iran’s nuclear capabilities. While the effort certainly didn’t stop Iran, it is reported to have materially slowed the country’s efforts at building a nuclear bomb. Most Western nations would agree that this was a worthwhile effort.
It seems odd; however, that The United States is now calling on China to stop using hacking attacks. While some can justify the double standard based on the target and goal of the Stuxnet virus, Iran and its allies might not agree. To the same end, China surely believes that its Internet efforts are justified, even if it denies they exist.
The New Cold War
Accusations and denials between world powers sounds awfully familiar, particularly for anyone who remembers the cold war. That “war” was about nuclear missiles; today’s cold war is about computer attacks.
Anyone who has experienced a virus on their computer knows how debilitating it can be. However, imagine the electric grid being taken down by such an attack. Large swaths of The United States could quickly look like the northeast after the recent hurricane season left people without power for a week or more. Gas lines, an inability to refrigerate food, and limited communications could quickly make it feel like we’ve stepped into the dark ages.
At the end of the day, the interconnectedness of the Internet has been a wonderful thing for society. However, it has also opened up a new battlefield. Now is the time to think about this threat.
Invest in it
There are two ways to invest in cyber war. The first is companies that protect other public companies. Two leaders in the space are Sourcefire, Inc. (NASDAQ:FIRE) and Fortinet Inc (NASDAQ:FTNT). These two companies provide cybersecurity solutions.
Sourcefire, Inc. (NASDAQ:FIRE) has been in operation for 11 years and has more then 2,500 customers across 180 countries. It targets companies in the mid to large categories, as well as government agencies. The company’s top line has been growing steadily for a decade, though earnings have been less regular. With a collection of key patents and an large customer base, however, it is well positioned to keep growing since the threat against which it protects is only going to get worse.
Fortinet Inc (NASDAQ:FTNT) has over 150,000 customers with revenues fairly evenly distributed around the world. Its patent portfolio is several times as large as Sourcefire, Inc. (NASDAQ:FIRE)’s. It’s market cap and top line are both about twice as large, too. However, bottom line results haven’t been particularly impressive. Like Sourcefire, Inc. (NASDAQ:FIRE), however, it looks to have years of growth ahead.
Neither of these companies are appropriate for conservative investors, although more aggressive investors with a long time horizon might want to step aboard these computer defenders.
War is War
Another interesting option in the cyber war space is to buy into the military industrial complex. While the companies here have operations that span well beyond this one niche, they have been dealing with this issue for a long time. Moreover, the systems being protected are far more critical than an office network. When battlefield systems are at risk, there’s no room for mistakes.
The clear leader in supplying the armed forces is Lockheed Martin Corporation (NYSE:LMT). While its business is vast, it lays claim to being the number one provider of information technology services to the federal government for the last 18 years. And it has impressive credentials in the cyber war arena.
For example, the company is partnered with the Department of Defense Cyber Crime Center, providing “digital and multimedia forensics examination, analysis, research, development, test and evaluation, information technology and cyber analytical services.” Lockheed’s Palisade solution provides cyber security specifically to the energy industry. And its Wireless Cyber Security Center allows for the safe testing of “wireless communications systems in a classified environment.”
With a yield hovering around 5%, this industry giant is appropriate for income investors seeking exposure to the cyber war area. That said, the trend toward cutting defense spending could impact the company’s top line over the near term. Longer term, however, Lockheed will likely thrive.
A Changing Battlefield
One fact that every industry participant highlights is the changing face of the cyber threat. As one set of threats is stopped, new ones are created. Regardless of what form the next attack takes, however, the above companies will be there to fight it and profit from it. You can tag along for the ride.
The article Prepare Your Portfolio Now For Cyber War originally appeared on Fool.com is written by Reuben Gregg Brewer.
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