In this article, we talk about the 10 cybersecurity stocks to buy as US-China tensions mount. If you wish to skip our detailed analysis of US-China tensions and cybersecurity stocks, go directly to 5 Cybersecurity Stocks to Buy as US-China Tensions Mount.
The United States and United Kingdom have issued a grave warning against their common enemy: China. The heads of the MI5 and the CIA recently made an unprecedented joint statement highlighting how China was the "biggest long-term threat to our economic and national security." Head of British MI5 noted that his agency had doubled the amount of work it was doing against Chinese activity, and would double it again. The FBI also warned that if China was to take Taiwan by force, it would lead to one of the world's worst business disruptions. This is especially true considering that Taiwan is home to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), the world's largest semiconductor foundry which serves big names such as Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC), and NVIDIA Corporation (NASDAQ:NVDA), among others. Any disruption in the company's operations would lead to a catastrophic global chip shortage.
As the West positions itself to counter the growing economic and political influence of China, Western governments are amping up spending on cybersecurity defense, a critical arena for 21st century warfare. IT companies were awarded a total of $71.6 billion in contracts from the US government in 2021, of which a $4.4 billion was spent on IT security and compliance, an increase of $1.5 billion from 2020. Leidos Holdings Inc (NYSE:LDOS) was the largest IT contractor with $3.3 billion, whilst CACI International Inc. (NYSE:CACI) also featured with $1.6 billion worth of contracts awarded by the US government in 2021. Both these companies provide cybersecurity services, among others, to national agencies.
The Russian attack on Ukraine in February also provided a boost to cybersecurity stocks. Heightened geopolitical tensions around the globe have proved beneficial for the cybersecurity space, and the growing prevalence of this industry looks set to persist in the long run as governments and businesses increasingly rely on digital infrastructure for their needs and operations.
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We picked 10 cybersecurity stocks best positioned to enjoy increased funding, visibility and strong demand within the current environment. Analyst ratings have have also been added, along with hedge fund sentiment, to give our readers a complete picture of the ongoing investing climate.
Cybersecurity Stocks to Buy as US-China Tensions Mount
10. Leidos Holdings Inc (NYSE:LDOS)
Number of Hedge Fund Holders: 19
Leidos Holdings Inc (NYSE:LDOS) is a Virginia-based company which provides a range of services to the defense industry in the United States, including cybersecurity. It stands to benefit within the current geopolitical setup as a unique company which counts as both a cybersecurity and a military defense play.
19 hedge funds from the Q1 database of Insider Monkey reported long bets on Leidos Holdings Inc (NYSE:LDOS), with combined positions worth $223.5 million. The firm's largest shareholder was Ken Griffin's Citadel Investment Group, which recently increased its stake by 197% to come in at roughly $68 million.
On May 4, Truist analyst Tobey Sommer raised the firm's price target on Leidos Holdings Inc (NYSE:LDOS) to $120 from $108 and maintained a 'Buy' rating on the company shares. The analyst noted that he remains constructive on the potential growth acceleration for the firm in 2023.
Just like Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC), and NVIDIA Corporation (NASDAQ:NVDA), Leidos Holdings Inc (NYSE:LDOS) is on the radar of investors on Wall Street.
9. CACI International Inc. (NYSE:CACI)
Number of Hedge Fund Holders: 25
CACI International Inc. (NYSE:CACI) deals in the provision of cybersecurity, enterprise IT, digital solutions, and mission support services to the United States government and its agencies. Whilst the S&P500 has slid more than 9% in the last 6 months, Virginia-based CACI has gained 7.07% over the same period.
On July 21, Baird analyst Peter Arment initiated coverage of CACI International Inc. (NYSE:CACI) with an 'Outperform' rating and a $335 price target, noting that he views the stock as a core long-term holding, especially in the current market volatility. Pointing to the Department of Defense's multi-year IT modernization push, coupled with recent technology deals, Arment expects upside for growth and margins for CACI International Inc. (NYSE:CACI). The analyst also noted that the firm's strong backlog, "solid" sales growth and healthy free cash flow act as the "the cornerstone of our bullish thesis."
Out of all the hedge funds tracked by Insider Monkey, 25 reported bullish bets on CACI International Inc. (NYSE:CACI) at the end of the first quarter of 2022, down from 26 hedge funds a quarter earlier. The combined value of Q1 hedge fund holdings stood at $377.7 million. With a nearly $143 million stake, Horizon Asset Management was the most prominent shareholder of CACI International Inc. (NYSE:CACI) in the first quarter of 2022.
8. Check Point Software Technologies Ltd. (NASDAQ:CHKP)
Number of Hedge Fund Holders: 34
Check Point Software Technologies Ltd. (NASDAQ:CHKP) is an Israeli cybersecurity firm which offers a portfolio of network security, endpoint security, data security, and management solutions.
Hedge funds were recently seen loading up on Check Point Software Technologies Ltd. (NASDAQ:CHKP). 34 hedge funds reported ownership of positions in the company at the end of March, as compared to 31 hedge funds at the end of December. With a stake worth more than $218 million, Arrowstreet Capital was the largest stakeholder of Check Point Software Technologies Ltd. (NASDAQ:CHKP) in the first quarter of 2022.
On July 20, BofA analyst Tal Liani upgraded Check Point Software Technologies Ltd. (NASDAQ:CHKP) to 'Buy' from 'Underperform' with a price target of $140, up from $130, noting that the firm has seen revenue growth acceleration in the past few quarters. The analyst also assessed that the firm would be able to outperform in the near-term on a relative basis. Wedbush analyst Dan Ives on July 12 added Check Point Software Technologies Ltd. (NASDAQ:CHKP) to the firm's 'Best Ideas' list, noting that he did not see any major growth slowdown for the cybersecurity space.
Here is what Diamond Hill Capital had to say about Check Point Software Technologies Ltd. (NASDAQ:CHKP) in its Q1 2022 investor letter:
“Check Point reported a solid Q4 as the company continues its lengthy transition towards a subscription-based sales model. We expect the firm to consistently repurchase shares with the substantial free cash flow it generates each year.”
7. SentinelOne, Inc. (NYSE:S)
Number of Hedge Fund Holders: 38
Up next is SentinelOne, Inc. (NYSE:S), a provider of cybersecurity services headquartered in California. Among the hedge funds tracked by Insider Monkey, a total of 38 hedge funds disclosed ownership of positions in the company at the end of the first quarter, with an aggregate value of $2.23 billion. This is in comparison to 39 hedge funds a quarter earlier.
On June 2, BTIG analyst Gray Powell reiterated a 'Buy' rating on SentinelOne, Inc. (NYSE:S) shares, and lowered the price target to $37 from $48 to reflect a contraction in multiples across software. The analyst noted that the company's endpoint/EDR business remains strong as it continues to rapidly gain market share and make inroads with larger enterprise accounts as well.
As of the end of the first quarter of 2022, Third Point was the leading shareholder of SentinelOne, Inc. (NYSE:S), with a massive stake exceeding $1 billion. The company shares also represented 25.7% of Anchorage Advisors' overall Q1 portfolio, with a position worth nearly $382 million.
ClearBridge Investments, an asset management firm, discussed SentinelOne, Inc. (NYSE:S) in its Q4 2021 investor letter, stating:
“We added six new positions in the fourth quarter. We see next-generation cybersecurity provider SentinelOne, although early in its growth lifecycle, as capable of taking share from legacy players in the antivirus and broader cybersecurity industry.”
6. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 39
Fortinet, Inc. (NASDAQ:FTNT) has posted gains of 12.41% in the last 12 months as of July 25. The American company provides broad, integrated, and automated cybersecurity solutions to clients around the world.
Investors were seen piling into Fortinet, Inc. (NASDAQ:FTNT) during the first quarter of 2022. At the end of March, 39 hedge funds held $1.49 billion worth of combined positions in the company, as opposed to 31 hedge funds in the previous quarter with $1.32 billion in aggregate stakes. Jim Simons' Renaissance Technologies was the biggest shareholder of Fortinet, Inc. (NASDAQ:FTNT) in the first quarter, with a stake worth approximately $320 million.
On July 12, Wedbush analyst Daniel Ives added Fortinet, Inc. (NASDAQ:FTNT) to the firm's 'Best Ideas List', whilst reiterating an 'Outperform' rating along with a $76 price target. The analyst expressed confidence on the company's ability to execute its long-term vision of continuing to gain market share, given that it is enjoying benefits from strong tailwinds and its proprietary ASIC technology.
Here is what ClearBridge Investments had to say about the prospects of Fortinet, Inc. (NASDAQ:FTNT) in its Q3 2021 investor letter:
“Performance among our cohort of IT and Internet companies was mixed, with enterprise software makers thriving while more consumer-oriented stocks faced headwinds. Cyber security software maker Fortinet benefited from a heightened awareness of the need to protect against sophisticated attacks. We are attracted to the recurring revenue nature of these software companies that are increasingly delivering their products on a subscription basis through the cloud. Software business models also tend to avoid many of the inflationary issues facing companies with a physical product or service.”
Along with Apple Inc. (NASDAQ:AAPL), Intel Corporation (NASDAQ:INTC), and NVIDIA Corporation (NASDAQ:NVDA), Fortinet, Inc. (NASDAQ:FTNT) is an exciting stock to consider in 2022.
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Disclosure. None. 10 Cybersecurity Stocks to Buy as US-China Tensions Mount is originally published on Insider Monkey.