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"Pay Me Some Bitcoin or I'll Ruin Your Life"

It was just two days before the Thanksgiving holiday when 40-year-old Alina Simone, a Brooklyn, N.Y., musician and writer, received a frantic phone call.

It was her mother, and she was being "held hostage."

Digitally speaking …

With panic in her voice, Simone's mother read the stark message displayed on her computer screen.

"Your files are encrypted," the message stated. "To get the key to decrypt files you have to pay $500. If you fail to pay within a week, the price will go up to $1,000. After that, your decryption key will be destroyed and any chance of accessing your files – all of your data – will be lost forever."

The message was signed "Sincerely, CryptoWall."

More than 5,000 files – irreplaceable family photos, critical work documents, life-sustaining bank statements and other sensitive information – were now in the hands of cyberthieves.

Hysterical, and uncertain what to do, the Simones capitulated and paid their captors nearly $600.

Welcome to the new digital horror known as ransomware – a cyberthreat so colossal that security specialists are now classifying it as an "epidemic."

That's not hype.

It's a fact.

And I can prove it.

Better yet, I can show you how you can turn the tables on this new threat.

Immediately.

But before I show you how you can cash in, let's take a closer look at how ransomware has grown to epic proportions.

The New "Hackerpocalypse"

We've been talking about the hacking threat facing the United States since the very launch of Private Briefing.

Three years ago, I told you that Russia was using Ukraine as a "hacking testing ground" – and would be turning its cyber weapons on the United States very soon.

We were right on both counts.

Since we made our predictions, we've all read how China's Internet Army has swiped the specs for all the top U.S. weapons systems. And right now – even as we talk here – American news organizations are detailing Russia's alleged efforts to hijack the U.S. election.

I'm recounting these predictions not to boast (well, okay, maybe a little), but rather to build credibility so that you'll also take seriously our warning that the ransomware threat is going to escalate mightily in 2017.

In concept, ransomware is deceptively simple – in essence, a form of "digital extortion."

After tricking the victim into clicking on an innocent-looking (but stealthily malicious) link or attachment, the ransomware software encrypts files and displays a message with instructions on how to recover them.

As we saw with the Simones, recovery of those files is almost always predicated on a payoff – in dollars, or even in Bitcoin (hence the headline of today's report: "Pay Me Some Bitcoin or I'll Ruin Your Life").

But it's not just families being targeted.

Over the past few years, cyberthieves have focused on much bigger targets – like banks and hospitals… institutions that can't afford to be parted from their data.

In February, a Los Angeles hospital, Hollywood Presbyterian Medical Center, paid hackers $17,000 to recover files after the hospital was denied access to much of its computer system. Doctors' orders, payroll, and patient transfers had to be logged manually.

The hospital was forced to declare an "internal State of Emergency."

In another case in April, the NASCAR team Circle Sport-Leavine Family Racing (CSLFR) paid $500 to recover files. You see, days before CSLFR planned to field Michael McDowell in Chevy No. 95 at the Texas Motor Speedway, ransomware locked down their critical data: chassis information, wind-tunnel spreadsheets, simulations, track data, test facility data, personnel information, car part lists and, according to Catchfence.com, "custom high-profile simulation set-ups valued at $2 million."

And, most recently, ransomware stole headlines again after the University of Calgary was forced to hand over $20,000 after the school's computer systems were hijacked for nearly two weeks.

While this is just a small sample of the recent ransomware attacks to plague businesses, they prove one thing: Ransomware has the potential to become Public Enemy No. 1 for corporations.

In its 2016 cybercrime report "Hackerpocalypse: A Cybercrime Revelation," Herjavec Group, an information-security firm based in Toronto, said total cybercrime costs will soar from $3 trillion in 2015 to $6 trillion in 2021.

Among the key catalysts:

  • Increased nation-state cyberthreats.
  • The growing "attack surface" – thanks, in part, to the proliferation of connected devices.
  • The shortage of cybersecurity "talent."
  • The lack of adequate "awareness" training for employees.
  • And new threats – including ransomware.

A Billion-Dollar Business – and Growing

And the ransomware threat is accelerating.

According to the FBI, ransomware was on track to become a $1-billion-year criminal enterprise in 2016. Indeed, in the first quarter alone total ransomware payouts reached $209 million – up from $24 million for all of 2015.

Look, I know how mind-numbing big numbers can be.

So let's look at this threat from a couple other vantage points.

According to the U.S. Department of Justice, ransomware attacks have quadrupled since last year, coming at a rate of 4,000 a day. And the FBI says that the cost per incident is zooming, too – from roughly $10,000 per attack in 2015 to $333,000 now.

Increasingly, these cyber extortionists are targeting companies, says Marcin Klecynski, CEO of the cybersecurity company Malwarebytes Corp.

"In the last six to 12 months, [ransomware] has gone aggressively after the business environment," Klecynski said. "We see companies from 25 people all the way to 250,000 people getting hit with ransomware."

Today, most victims come from the healthcare sector, with more than 30% of all ransomware attacks targeting healthcare firms, followed by educational organizations (17%) and government sectors (16%).

With a cyber epidemic this severe, there is a two-pronged defense strategy you can use to protect yourself.

The first, which we will talk about more in an upcoming Private Briefing report, is prevention. Being able safeguard your family from ransomware thieves is not only a hot button issue – it's also a lucrative-and-growing market.

The second, and the one we're going to dig into today, takes a more offensive approach: removal.

Cyberthieves are notorious for flipping the script when it comes to hacking. That's why when you look at a colossal cyberthreat like ransomware perpetrators, it takes more than just prevention to keep them at bay.

You need to understand the tools companies and individuals use to battle the threat. And you need to know which cybersecurity firms sell those tools.

Do that and you'll have found a way to cash in on the ransomware spending cycle that's going to ramp up this year.

The "Be-All" Profit Play

One of the challenges facing cybersecurity investors is the constantly changing "threat environment." New threats demand new solutions. And very often the cyber player that's "hot" in one environment because of its offerings is "replaced" by a different player in another.

Our first "ransomware play" sidesteps that risk of being "out of step" with the market – by investing in a broader basket of cybersecurity stocks. Indeed, this recommendation – which we've made here before – is the PureFunds ISE Cyber Security ETF (NYSE Arca: HACK).

HACK is one of those "best of both worlds" profit plays. It gets you stake a claim to the high-growth cybersecurity market. And because you invest in a basket of stocks, it will "smooth out" some of the near-term volatility – and the risk of failure – that accompanies a single-stock investment.

And it should also let you sleep a bit better at night.

HACK benchmarks the ISE Cyber Security Index, "which tracks the performance of companies actively engaged in providing services for cybersecurity and for which cybersecurity business activities are a key driver of their business model. These cyber security services are designed to protect computer hardware, software, networks and data from unauthorized access, vulnerabilities, attacks and other security breaches," says PureFunds, which markets the ETF.

HACK holds about two dozen stocks – most of them smaller-cap firms with high growth potential. Some of the top holdings include…

  • Vasco Data Security International Inc. (Nasdaq: VDSI), a Chicago cybersecurity firm whose stock we recently recommended.
  • Palo Alto Networks Inc. (NYSE: PANW), another company whose shares we are looking at.
  • Fortinet Inc. (Nasdaq: FTNT).
  • Radware Ltd. (Nasdaq: RDWR).
  • Symantec Corp. (Nasdaq: SYMC).
  • And FireEye Inc. (Nasdaq: FEYE).

A Customer's Favorite

I'm oversimplifying things here, but there are essentially two basic types of Ransomware: lock screen, which limits the users from accessing the computer; and crypto (file encryption), which encrypts files to limit users from access their files.

Trend Micro Inc. (OTC ADR: TMICY) has developed a "screen unlocker" tool that's designed to eliminate lock-screen ransomware from infected PCs in two different scenarios:

  • Scenario 1: Lock-screen ransomware is blocking "normal mode," but "safe mode" with networking is still accessible.
  • Scenario 2: Lock-screen ransomware is blocking both "normal mode" and "safe mode" with networking.

Trend Micro's software is designed to protect emails, servers, networks and even "endpoints." Customers can use the software to detect malicious activities, detect vulnerabilities and make it tough for ransomware to spread. Network operators can "sandbox" ports to keep ransomware from spreading.

The Japanese company is building a great reputation with clients by creating products that do the job, that are easy to use, and that are easy to find and buy. Trend Micro is successful because it makes sure to do one important thing – and do it very well.

In a research report released earlier this week, IDC MarketScape said that "Trend Micro is very good at listening to customers and adjusting its products based on the current trends" and that customer feedback."

Furthermore, Trend Micro's "channel partnership, sales structure, and multiple bundling options with its own products and partners make it easy to purchase the product and any additional products and features exactly how, when, and where a customer requires them."

The company's ADRs currently trade near $37. The company has a $5.22 billion market cap.

Here are several other players to consider.

A Ferocious Foe

While Fortune 100 firms can afford large cybersecurity budgets, thousands of midsized firms – faced with limited budgets – must seek still robust network defenders at a reasonable price.

The key in this niche is to find a cybersecurity firm that's able to lure these clients with a starter package – and then sell them deeper and stronger software sets as they grow.

According to Michael A. Robinson, our in-house tech-stock guru, there's one company that's excelling in this space: Barracuda Networks Inc. (Nasdaq: CUDA). The company is aptly named – for a marine fish known for being a ferocious fighter, and for its sharp teeth.

"Bill, Barracuda has worked that angle like a maestro across its base of 200,000 clients, pounding out 20% average yearly sales growth over the past four years," said Michael, who runs the Radical Technology Profits advisory service here at Money Map Press. "Wall Street has been caught off guard by this firm, which has blown past quarterly profit estimates by an average 74% over the past two quarters."

Barracuda helps clients in three key areas: data security, application delivery and disaster recovery.

While this Silicon Valley firm is fast approaching the $350 million sales threshold, management figures Barracuda can hit the $1 billion mark over the next five years, as the total market of global midsized firms it's targeting exceeds 2.5 million.

With a market cap of $1.2 billion, the stock trades at $22.80. Twelve-month estimates for the stock run as high as $32 a share, with a consensus of $28.

Go "Two Factor" – or Get Hacked

If you haven't signed up yet for "two-factor authentication," now is the time. A regular password – paired with a text-message link, a phone call back or a token ring key – can make it nearly impossible for a hacker to log in to your most important online accounts.

The world's leading provider of two-factor authentication, Vasco, also brings many more weapons in the fight against cyberthieves. Based in Oakbrook Terrace, Ill., Vasco offers an "electronic signature software" helps financial and banking firms ensure that only verified clients can sign key documents.

"Biometric ID software is the next major push for Vasco, as smartphone makers start to build fingerprint-reading hardware into their phones," Michael said. "The firm's software can be tailored to any kind of desktop or mobile device. The focus on mobile access is especially important. Vasco's DIGIPASS software can be built into almost any kind of mobile app, ensuring that the shady guy at the coffee shop next to you won't get access to your vital log-in data."

At a recent price of $14.68 – following a typical Wall Street overreaction selloff – Vasco has a small-cap market value of $566 million.

Wild Trends in a Wild Market

Small and midsized firms don't have the time and resources to bench-test a whole bunch of cybersecurity packages. Many of these firms turn to cybersecurity firms that offer something called "Unified Threat Management" (UTM) solutions.

Fortinet, also based in Silicon Valley, is the nation's leading UTM supplier.

"This is a company that offers firewalls, virtual private networks (VPNs), antivirus software, content/web filtering, spam filtering and intrusion-detection and prevention (ID&P) – in a single integrated package," Michael told me. "IT managers can control the whole platform from one direct interface. There's no need to worry if one piece of cyber-software will conflict with another program that was sold by a rival vendor."

One reason I like this play is that we're not just talking about software. Fortinet has also developed its own line of chips that have cyber protection built right into them. Sadly, many general-purpose chips made by the world's top semiconductor firms have major security holes.

"In recent years, Fortinet as started to partner up with major tech partners," Michael said. "That has helped sales grow from $250 million in 2009 to more than $1 billion last year, and an expected $1.5 billion by 2017."

The Wall Street types seem to be catching onto this company's upside potential: Analysts currently have a 12-month target of $35 – with a high-water estimate of $42. The stock currently trades at about $31.

Ransomware became a billion-dollar "enterprise" last year. Here in the New Year, ransomware assaults will grow in both number and complexity.

Indeed, as Wired reported in a story published earlier this week, this year "ransomware attacks are going to get bigger in every possible sense of the word."

Want an example of just how "extreme" this treat could get?

Check out this additional passage from the magazine story.

"A recent ransomware version called Popcorn Time… was experimenting with offering victims an alternative to paying up – if they could successfully infect two other devices with the ransomware," the magazine reported. "And more innovation, plus more disruption, will come in 2017."

More ransomware attacks can only translate into more business for the firms that prove they can blunt the threat. That makes this a niche tech investors absolutely want to have money on in 2017.

I've told you about the big cyberthreats – before they happened.

And now ransomware is one of the next big cyberthreats.

We'll keep you updated.

See you folks tomorrow.

Follow me on Twitter and Facebook.

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

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