For most of 2013, we've warned about China's ongoing hack attacks on American companies and government agencies. The assaults highlighted the fragility of our current infrastructure networks.
In March, the National Intelligence Estimate (NIE) announced that the U.S. "is the target of a massive, sustained cyber-espionage campaign that is threatening the country's economic competitiveness."
But a recent announcement about cybercrime signals a major change to this threat's evolution...
According to statements last month by Federal Bureau of Investigations (FBI) Director James Comey, cyber-attacks have replaced domestic terrorism as the top threat to the U.S. homeland. A major cyber event has the potential to cause widespread problems for an economy that relies so heavily on technology, distribution, and lean processes.
That means two things...
First, there's an immediate need for more cybersecurity investment, which will increase over the next few decades.
Second, the companies in this online defense space will become necessary to U.S. business and national safety - making them among the best investments in 2014.
Investors can reap big profits from companies protecting the backbone of the 21st century economy.
Cybercrime: "All of Us are Neighbors"
Crime is going digital because the money and the victims are there and more vulnerable than ever.
But unlike real-world crime, where some people can afford protection like living in more secure buildings and gated communities, the online world leaves everyone susceptible.
"That's where the bad guys will go," Comey told Congress. "There are no safe neighborhoods. All of us are neighbors [online]."
And the importance of keeping our "neighborhood" safe grows each year...
The virtual world is displacing the brick-and-mortar economy of the 1980s. As a result, we've seen remarkable growth and increases in living standards, as trade and communication are more instant than ever.
But with that growth, built on the backbone of technological infrastructure and connected devices, the threats to economic growth built on speed, screens, and scale are grander than ever.
McKinsey Global Institute forecast that the "Internet of Things" - the ability for people, objects, and animals to automatically transfer data over a network with the use of portable devices - is so big and growing so quickly it will add hundreds of billions of dollars a year in new gross domestic product (GDP) growth by 2020.
While technology has fueled a boom in global trade and commerce, it brings risks with it. We'll need more protection. The cost of "getting it wrong" will only get worse.
The Center for Strategic and International Studies this year reported that cybercrime losses result in $500 billion globally, per year. As attacks grow more pronounced, corporate IT security budgets will rocket from $65 billion in 2013 to $93 billion in 2017.
So where should you put your money?
Best Investments 2014: Three Ways to Get Rich from Cybersecurity
Investing in cybersecurity isn't like buying a commodity class and waiting for the demand to arrive. We want to place an emphasis on specialization. Just as the global economy relies on specialized efforts of companies to grow, so too will our defense networks.
We simply need to prioritize. For these reasons, we can break down cyber-spending in three customer categories: consumer, business, and government.
The first category is the consumer aspect, which focuses on two areas: financial security and communications. We want focus on the multiple touch points consumers are using to manage their money and purchase products.
According to an August study by the Pew Research Center, 51% of American adults and 61% of Internet users use online banking. In addition, 32% use mobile devices for banking services, an increase from 18% in 2011.
The survey also shows that younger Americans are far more likely to embrace mobile banking. As younger Americans join adulthood, the increase in mobile banking will accelerate, while adoption by older generations continues at a steady pace.
Tack on the acceleration of mobile use for other daily tasks from shopping to scheduling a flight, and the backbone of the preferred method of 21st century communication will require significant investment to protect it.
It is tempting to chase a pure mobile security company like NQ Mobile Inc. (NYSE ADR: NQ) - which soared as high as 153% after our Private Briefing service recommended it - but it is important to remember that online computing is still the primary source of communications and ecommerce today. Mainstream players in online security will make the full transition and adopt greater mobile products as the fundamentals justify that shift.
A big player here is Symantec Corp. (Nasdaq: SYMC), a global provider of security, storage, and systems management solutions with an extensive focus on managing consumer data and information.
On the business side, financial information security is also a concern, but additional emphasis needs to be placed on procurement - companies' actual distribution of raw materials, products, and services. Financial theft is easy to replace, but significant disruptions to business practices are the real threat to economic growth.
The best cybersecurity in these areas will protect the systems that monitor distribution networks responsible for product flow. That includes using sensor technology for fleet trucks and shipping containers as well as protecting companies' websites and internal networks.
Businesses also have communication platforms that are highly vulnerable to malware. Symantec also caters to the business side; it creates suites across email, mobile, and networks to increase worker productivity and increase corporate security.
Finally, on the government side, protecting financial assets will again be a factor - but so will safeguarding daily operations that keep a country's citizens safe. That's why homeland cybersecurity spending by governments around the world is expected to increase to more than $2 trillion a year by 2022. This will benefit companies like defense contractor Northrop Grumman Corp. (NYSE: NOC), who, along with Italian firm Finmeccanica, signed a massive contract with NATO to provide cybersecurity for NATO's network across 50 sites and 28 member countries. Companies like Northrop will continue to profit as international governments boost cyber networks and can provide the strategic intelligence to help nations expand their cyber defense against the new threats of the 21st century.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.