Battered Security Software Stocks That May Have 70% Upside

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Sometimes despite good earnings and outlooks, great stocks get caught up in sell-offs like the one we experienced from late February through much of April. What started as biotech sell-off turned into an "anything momentum and rich" sell-off, which in some cases threw the proverbial baby out with the bath water. In a new report, the analysts at Oppenheimer point out that for most of the top security software stocks first-quarter earnings were very good. Their field checks and conversations with chief information officers suggest security remains a top spending priority, driven by complex network attacks and an increased regulatory environment.

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Here is a recap of first-quarter numbers and the top security software stocks covered by the Oppenheimer team.

Check Point Software Technologies Ltd. (CHKP) remains one of the top stocks to buy on Wall Street for a security presence, and Oppenheimer dubs the stock their "Steady Eddie" name to buy. The company continues down the path of its Software Blade strategy and is arguably more candid about its installed base advantage where it will look to continue to consolidate product features within its platform and provide customers a superior cost of ownership. This stock is rated Outperform, and Oppenheimer has a $76 price target. The Thomson/First Call consensus target is $72.52. Checkpoint closed Tuesday at $65.28 a share.

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FireEye Inc. (FEYE) was absolutely blasted in the sell-off for many reasons, including a rich valuation, continued deal making and insider lock-ups expiring. It was one of the high-flyers we profiled ready for a potential bounce. The analysts believe that the company is executing on its strategy to penetrate the enterprise market with its end-to-end platform to detect, block and remediate Advanced Persistent Threats. The stock is rated Perform, so there is no Oppenheimer price target. The consensus target is $49.67. FireEye closed Tuesday up again at $27.02. A trade to the target would be a gigantic 74% gain.

Fortinet Inc. (FTNT) was another top cybersecurity name that has been hammered despite posting very good first-quarter results both on the top and bottom lines. The Oppenheimer team thinks that the company continues to execute on its plan to reaccelerate growth by leveraging investments in sales and marketing. While investments may be limiting some margin growth, long term they think it translates to higher earnings. The Oppenheimer price target for the stock, which is rated Outperform, is $28, and the consensus number is $26.20. Fortinet closed Tuesday at $20.58.

Imperva Inc. (IMPV) came in at the high end of revenue estimates, but it still continues to lose money. The company's products fill the gaps in endpoint and network security by directly protecting high-value applications and data assets in physical and virtual data centers. The Oppenheimer team feels the stock is truly a "show-me" story, where it has to prove that product strategy and execution is back on track. The team rates the stock Perform. The consensus price target is a whopping $33.82. Imperva closed Tuesday at $19.38. A move to that target would be a huge 70% gain.

Palo Alto Networks Inc. (PANW) is leading a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber threats. Unlike fragmented legacy products, the company's security platform safely enables business operations and delivers protection based on what matters most in today's dynamic computing environments: applications, users and content. Palo Alto does not have the massive sales force that some of its competitors have. It may be an acquisition target and is rated Perform at Oppenheimer. The consensus price target is $84.11. Palo Alto closed Tuesday at $61.88.

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Symantec Corp. (SYMC) is looking to make more strategic investments around the security and information management segments in the coming year. Additionally, Oppenheimer says the company expects to return finally to revenue growth in the second half of its fiscal 2015 year, with the target of achieving operating margins of around 30% by year-end. The stock could prove to be a winner for patient long-term investors. It is rated Perform at Oppenheimer, and the consensus price target is $22.02. Symantec closed Tuesday at $21.25.

The momentum and tech sell-off took a huge amount of market value out of some of these top security software names. While investors need to have a high risk tolerance to jump back into the more aggressive names, the risk-reward could be outstanding. Most importantly, the sector will only continue to gain followers as corporate and government security needs are intense and growing.

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