Best Investments 2013: 28% Gain a Preview of What Cybersecurity Can Offer

We told you Monday how cybersecurity stocks are among the best investments of 2013.

Anyone investing in Sourcefire Inc. (Nasdaq: FIRE) feels that way today...

That's because the latest example of the sector's growing profit potential came Tuesday when Cisco Systems Inc. (Nasdaq: CSCO), the biggest maker of networking equipment, announced it will acquire Sourcefire, a cybersecurity technology company, for $2.7 billion.

Underscoring the potential Cisco sees from the deal, Cisco will pay $76 a share in cash, a near 29% premium over Sourcefire's prior day close.

Sourcefire's stock rose nearly 28% on the news.

The deal is also good for Cisco investors.

The hook-up gives Cisco a strong foothold in the growing cybersecurity industry, an area in which it has lost market share over the last several years.

Smaller pioneering competitors, such as Juniper Networks Inc. (Nasdaq: JNPR), CheckPoint Software Tech Ltd. (Nasdaq: CHKP) , Palo Alto Networks Inc. (NYSE: PANW) and Fortinet Inc. (Nasdaq: FTNT) quickly established names for themselves ahead of Cisco. They provided innovative and complex security protection beyond traditional firewall shields used in Web applications, social media and video streaming.

The acquisition of Sourcefire will help Cisco compete.

Founded in 2001, in Columbia, MD, Sourcefire's products protect networks from hacking activities, intrusion attempts and vulnerabilities for businesses and government agencies.

"This is certainly going to boost revenue, but more so than anything else it is going to give Cisco engineers technical acumen and establish credibility with Cisco in the space," Jason Ader, a William Blair & Co. analyst told Bloomberg.

In addition to strengthening Cisco's position in the arena, the deal removes a key competitor from the market and creates a larger player (Cisco) in the network security industry.

"With the acquisition of Sourcefire, we believe our customers will benefit from one of the industry's most comprehensive, integrated security solutions - one that is simpler to deploy, and offers better security intelligence," Christopher Young, senior vice president of Cisco's security group, said in a statement.

More M&A Ahead for Cybersecurity

The Sourcefire deal is a profitable reminder of why investors should focus on this sector as one of the best investments of 2013 - and for years to come.

An increasing number of sophisticated cyberattacks continue to plague Americans and the rest of the world. The mounting threat underscores the growing need for better technology-based defenses against such attacks.

Global spending on cybersecurity is projected to hit $46 billion this year in industries running the gamut from energy to communications to finance to healthcare to transportation, according to an ABI Research report released in June.

As the numbers mount and the cost increases, demand for effective defenses to blunt these attacks is growing at a rapid rate.

Indeed, there have been a number of acquisitions by major technology companies racing to fight cyberattacks.

In June, Blue Coast Systems Inc., a diversified provider of Web traffic filtering, bought Solera Networks, a developer of technology aimed at thwarting cyberattacks.

There has also been an increase in seed money spent on cybersecurity start-ups.

Cylance, a one-year-old Southern California start-up, has already received some $15 million in venture capital. The company recently made headlines for uncovering security holes that could allow malicious hackers to inflict critical damage to crucial infrastructure such as hospitals, oil pipelines and banking systems.

The budding company believes it has found a niche: creating an artificial intelligence system capable of blocking future threats.

"We want to help avoid the cyber-Sept. 11," CEO Stuart McClure told the Los Angeles Times. "We have to silently protect - it's in our name. We're looking for flaws through a bad guy's glasses, exposing that dark and visible world, and looking for the bad guys and any other undesirables who might be there."

How Washington Will Help Your Cybersecurity Investments

Now Congress is considering making cybersecurity mandatory for crucial infrastructure - with good reason.

From December 2012-May 2013, federal officials found more than 200 attacks on crucial infrastructure, up from 198 over the previous 12 months.

The growing number of attacks on our country's cyber networks has become, "one of the most serious economic and national security threat our nation faces," U.S. President Barack Obama said.

The Obama administration is mulling backing tax breaks, insurance perks and other legal benefits for businesses that make significant improvement to their digital defenses.

Those incentives are aimed at attracting power plants, water systems of other critical infrastructures to adopt the voluntary cybersecurity standards the government and industry are compiling in response to President Obama's executive order.

Since the country doesn't have a strict cybersecurity law, the president's 2013 executive order depends on industry cooperation.

An update on the order is expected later this summer.

Read this for a closer look at our favorite "best investments" in cybersecurity...

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