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America's Biggest Hacking Threat Works at the Desk Next to You – and Only This Company Can Stop Him

When we recommended shares of CyberArk Software Ltd. (Nasdaq: CYBR) to you back on Nov. 12, we did so because the whole cybersecurity sector was being savaged by investors.

What a difference two weeks make.

Cybersecurity stocks are surging anew.

And you're being rewarded for your courage – and shrewdness.

Let me tell you the whole story…

And we'll start by "replaying the tape" from our mid-November analysis of this profit opportunity…

Auntie Em, It's a Twister

In early November – just before Radical Technology Profits Editor Michael Robinson and I shared the CyberArk recommendation with you – Investor's Business Daily reported that the entire cybersecurity segment had been trashed by a stock market "tornado."

Some of that thrashing was justified: For instance, both FireEye Inc. (Nasdaq: FEYE) and F5 Networks Inc. (Nasdaq: FFIV) reported disappointing quarters and compounded their sins by also lowering guidance.

Investors hammered both those stocks. But the investor angst that started with FireEye and F5 swirled into a "twister" that flattened the entire sector.

The "experts" claimed the conditions had been "just right" for this kind of sector-wide takedown. China and the United States had reached a supposed détente on cyber spying for commercial gain, and analysts figured the "no-hacking" pact would crimp corporate cyber-defense spending.

But Michael and I had a much different view.

Indeed, we zeroed in on specific "data points" – real-life developments – that pointed to cybersecurity being a true "growth business" for years to come.

In fact, just as we were sharing the CyberArk recommendation, a big federal indictment illustrated, yet again, that criminals view the online world as a hefty theft opportunity. In other words, despite what Wall Street believed, the cybercrime threat was as dark as ever.

At the same time, the specialty insurance unit of Allianz SE (OTC ADR: AZSEY) estimated that cybercrime costs the global economy about $445 billion a year. The Allianz Risk Barometer – which rank-orders the threats businesses are most worried about – says the hacking threat made the list at No. 5 this year… up from eighth last year and 15th in 2013.

That hacking threat is very real.

As we've explained to you, Russia, Iran, North Korea and many other countries are ramping up their cyberwarfare abilities. The Syrian Electronic Army (SEA) continues to grab headlines with splashy periodic attacks.

And that "no-hacking" agreement with Beijing? As we've told you, China has apparently already reneged on that pact.

Michael, our resident tech-stock expert, said the blistering of cybersecurity shares "proves a point that you and I have been making for months now… that Wall Street dumps stocks first and gets the facts later."

A sell-off that widespread – and that unjustified – created a big opportunity to grab cybersecurity shares at bargain prices.

So we recommended CyberArk – and re-recommended several other hacking-related stocks.

CyberArk shares have already surged nearly 8% – about 200% on an annualized basis.

Even more important, though, is the shift in investor sentiment that's already taking place.

Investors – and Wall Street – are starting to realize that their wholesale dumping of cybersecurity stocks was a major overreaction to some limited bad news.

After recommending CyberArk, sector peer Palo Alto Networks Inc. (Nasdaq: PANW) issued a first-quarter report that blitzed analyst estimates.

Thirty-seven analysts polled by Thompson Reuters had predicted that per-share earnings would come in at a modest 32 cents. But Palo Alto trumped those estimates by reporting earnings of 45 cents per share – a year-over-year jump of 133%.

It's great to see a company beat profit projections.

But as we explained in a recent Private Briefing, it's even better to see a company beat analyst forecasts for revenue – the so-called "top line."

And beat top-line estimates is just what Palo Alto did: It reported revenue of $297.2 million, compared to forecasts (and its own guidance) of $284.4 million.

The Threat From Within

I'm sharing this with you for a reason: Just as the earlier "bad news" from FireEye and F5 Networks had a chilling effect on share prices across the sector, the upbeat Palo Alto numbers had a bullish impact on other peer stocks.

And one of those beneficiaries was CyberArk, which offers protection from the cyber-world equivalent of an "inside jobs."

"Bill, as we've said in previous reports to your readers, this is a superb hacking play because the company has an expertise in so-called 'privileged-account security' – where hackers pose as corporate-security insiders, meaning they are one of the biggest threats companies and other organizations face," Michael explained. "CyberArk's shares had suffered in sympathy with the sector sell-off. But now the shares have rebounded, meaning your folks have a nice profit in quick fashion."

As Michael said, we're essentially talking about the risk posed by holders of "privileged accounts" – the special-access accounts that make it possible for each company's information-technology folks to get into, work on and fix the servers, switches, firewalls, routers, database servers and other applications they must manage. Many of these systems are not within a Windows domain and, by default, require simple username/password pairs to grant access.

IT folks get careless with those privileged accounts, or hackers from China or Russia hijack access, and another "data breach" plays out.

One high-profile example of this was the recently uncovered hack at the U.S. Office of Personnel Management (OPM) – the human-resources department for the federal government. In that case, hackers from China were able to access the OPM's data bases by cracking privileged accounts.

Those hackers made off with sensitive personal details of 21.5 million Americans whose data the OPM gathered and stored during background checks. The attackers also got away with the digitally stored fingerprints of more than 5.6 million U.S. citizens.

In spite of these revelations, the "inside job" threat is still poorly understood and deeply underestimated – by cybersecurity professionals and investors alike, experts say.

In fact, that was pretty much the key message that Rashmi Knowles – chief security architect at RSA Security LLC – delivered at last week's RSA Conference in Abu Dhabi.

According to Knowles, while many cybersecurity specialists continue to focus on the malware threat, it's actually "insider threats" that are becoming the biggest hacking risk. Indeed, a recent Verizon Communications Inc. (NYSE: VZ) data breach study reported that human error was the key to 66% percent of all unauthorized incursions.

In other words, when it comes to cybersecurity, "Public Enemy No. 1" isn't China, North Korea or Russia.

It's the person you work with.

Whether through malice or stupidity, your co-workers are the "weakest link" in the security chain, Knowles told her audience.

The "inside job" is the biggest cybersecurity problem that companies face. And blunting that insider threat is CyberArk's specialty.

You've heard us say this many times: Big problems represent big investment opportunities. Find the company that solves the problem, and you've found a promising stock.

And with the hacking risk, that maxim describes CyberArk to a "T."

This stock is one of the best cybersecurity plays we see right now. Currently, with the shares trading at about $43, analysts have a consensus target price of $65 a share on CyberArk – with a high estimate of $72.

In short, you're talking about a potential 67% gain from where the stock is trading right now.

Even TheStreet, which previously had a "Sell" rating on the shares, just issued a research note saying that the "bears [on this stock] should go into hibernation. Bulls on CYBR should consider the long side." The stock-market researcher also said that the $40 price level (formerly a "resistance" point) should now be a "support" level – also a bullish realization.

In other words, $40 is a new "base" that shares should rally from. If the stock drops to $35, it's a flat-out steal, the report said.

We agree. If you haven't already done so, buy 70% of your intended position here. Leave the remaining 30% open for a sell-off of 20%.

And stop back tomorrow…

[Editor's Note: Unless otherwise directed, as we've done here, we recommend investors employ a 25% "trailing stop" on all holdings.]

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