The Best Type of Cybersecurity Companies to Invest in Now

cybersecurity companiesCybersecurity companies have become one of the most promising new industries to invest in today.

Cybersecurity companies create products like firewalls, network safeguards, malware protection, and web security software that protect people, corporations, and governments from cyber attacks.

Research from MarketsandMarkets indicates that more than $95 billion will be spent on cybersecurity efforts this year. That figure will hit $155.74 billion by 2019.

And while all types of cybersecurity companies are cashing in, one section of the market is offering the best profit opportunity now. Its technology is a step ahead of the competition...

These Cybersecurity Companies Are Winning Their Market

Money Morning Executive Editor Bill Patalon has been recommending cybersecurity stocks to his Private Briefing investment service readers since 2011. And a massive industry "buy signal" this month tipped him off to the sector's newest play.

cybersecurity five year growth forecastYou see, in early February President Barack Obama dedicated $14 billion in his 2016 budget proposal to cyber defense. The money will be used to safeguard both government agencies and the private sector.

"The Obama budget underscores, yet again, that cybersecurity is a high-growth business. And it's a business we want to have a stake in," Patalon said.

Right now, Patalon and Money Morning's Defense and Tech Specialist Michael Robinson are recommending cybersecurity companies that use a new technology known as "two-factor authentication" or "2FA."

2FA adds an extra layer of protection to online transactions. That's critical, because our typical level of protection is dangerously insecure.

"Usernames and passwords - the protective measures we're the most familiar with - are only single-factor authentication," Robinson said. "With 2FA, you must be able to provide two, or even three, credentials. And that elevates your personal security by a massive amount."

Different types of credentials include:

  • Something you know - like passwords or security questions (mother's maiden name, pet's name, etc.)
  • Something you have - like credit card information or a smartphone.
  • Something you are - this includes "biometrics" like a fingerprint or voiceprint.

The use of fingerprints as an extra layer of protection is becoming much more common.

Major U.S. Cyber Attacks

Cybercrime costs the global economy more than $575 billion annually. Here are five of the biggest U.S. breaches in the last 12 months:

  • March 2014: eBay Inc. (Nasdaq: EBAY) reported hackers accessed all user records. That compromised 145 million people.
  • April 2014: Home Depot Inc. (NYSE: HD) said millions of its customers had their credit card information stolen. That cost the company $148 million.
  • July 2014: JPMorgan Chase & Co. (NYSE: JPM) reported 76 million accounts had been accessed by international hackers.
  • November 2014: The biggest cybercrime story of 2014 year went to Sony Corp. (NYSE ADR: SNE). That cost the company $100 million and comprised every single piece of information in Sony's systems.
  • February 2015: Healthcare firm Anthem Inc. (NYSE: ANTM) reported 80 million personal records had been breached.

Apple Insider reported in early February that Apple Inc. (Nasdaq: AAPL) had patented a new technology allowing people to scan their fingerprints on their iPhone's touchscreen. Users had been using the iPhone's "home" button for fingerprints. This new technology makes it even easier.

"The patent application shows fingerprints all over the screen, potentially showing a combination lock for additional security on iPhones and iPads," Patalon said. "Combine biometrics with a password and you've got 2FA technology in your smartphone."

This extra security technology comes at the perfect time. According to McAfee Inc., cybercrime costs the global economy more than $575 billion per year...

"These huge numbers prove the point we all know - we'll need more and more effective cybersecurity over the coming years, and we're willing to pay a lot for it," Patalon said.

And there is one cybersecurity company in particular that will see tremendous growth from 2FA in 2015...

2015's Emerging Cybersecurity Leader

The stock that Patalon and Robinson recommend is VASCO Data Security International Inc. (Nasdaq: VDSI).

It's the world's leading provider of 2FA technology. It's also an industry leader when it comes to one-time passwords and electronic signatures.

"Think of those single-use passwords like the 'one-time pads' used in spy craft," Patalon said. "With a one-time pad, cryptographers randomly generate a private key that is used only once."

VASCO's clients are mostly financial institutions looking to protect customers' online transactions. The company also covers mobile-commerce transactions and cloud computing infrastructures.

"The fastest-growing chunk of VASCO's business is banking cybersecurity - and it's easy to see why," Robinson said. "Pew Research Center says 51% of U.S. adults do at least some of their banking online. And Frost & Sullivan estimates that 45 million people used mobile banking in 2014.

[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]"VASCO counts more than half the world's top 100 banks as clients, including HSBC Holdings PLC (NYSE ADR: HSBC) and Bank of America Corp. (NYSE: BAC)," he continued.

VASCO has 10,000 total customers, 1,700 of which are financial institutions. Clients are located in more than 100 countries.

The company has grown its profits for 46 consecutive quarters. Patalon also notes it has raised revenue at a 21% compound annual growth rate from 2003 through 2013.

VASCO has beaten earnings estimates by an average of 108% over the past four quarters. This quarter, analysts expect EPS growth of 155% and revenue growth of 40.4%.

"We see a huge potential upside with this stock," Patalon said. "Analysts currently have a consensus target price of $32.50 on VASCO's shares, with a high-water estimate of $35 a share."

That's a potential gain of 36.7% from its recent price of $25.60.

The Bottom Line: Cybersecurity companies are profiting from a market that will grow to $155 billion by 2019. But the best cybersecurity companies to invest in are those focusing on the new 2FA technology. VASCO is an industry leader with strong revenue, earnings, and a 36.7% growth estimate.

Make More Money This Year, No Matter What the Market Does... You can make 2015 your wealthiest year in a few simple moves. You just need the three common investing habits to dump immediately, the single most effective strategy for your portfolio, and five stocks to get you started to a wealthier you. Get all of that right now in this exclusive guide...