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Breaking Down 3 Of The Year's Most Intriguing Cybersecurity Stocks

Chris Dier-Scalise

The state of the cybersecurity industry remains as intriguing and dire as ever. Between the threat of hacking and digital espionage from foreign actors, growing federal scrutiny over the privacy practices of online giants like Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) and Facebook Inc. (NASDAQ: FB) and the massively successful IPO of high-profile cybersecurity company CrowdStrike Holdings, Inc. (NASDAQ: CRWD), digital security remains the lynchpin industry underlying a vast swath of the market’s biggest headlines.

Which is what makes the advances in broad cybersecurity ETFs such an interesting artifact of the modern investment world. Take a look at the performance of several cybersecurity ETFs over the course of 2019 against the S&P 500, including ETFMG Prime Cyber Security ETF (NYSE: HACK), First Trust Nasdaq Cybersecurity ETF (NASDAQ: CIBR) and Canada’s top performing equity ETF last year the Evolve Cyber Security ETF (TSX:CYBR), which, in addition to the version hedged under the Canadian dollar, also trades as a U.S. dollar-denominated ETF, CYBR.U, as well as an unhedged ETF, CYBR.B.

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The ETFs, up between 19-28% year-to-date in the first half of 2019, have consistently led the broad market throughout the year. Taking a look at the constituent stocks, a few standouts emerge that provide an indication of which areas of the cybersecurity space are seeing the most traction in 2019.

Booz Allen Hamilton Holding Corporation (NYSE: BAH)

Up 52.55% YTD and maintaining a staggeringly consistent growth rate since late-2018, Booz Allen Hamilton’s global operations have obviously not been interrupted by the persistent trade wars roiling the rest of the market. Part of this rests with the IT consulting firm’s long-standing relationship as a contractor with the U.S. government in addition to a more recent contract with Saudi Arabia. The company has posted annual bottom line growth since 2017, while its revenue jumped an astounding 8.5% between fiscal years 2017 and 2018.

CYBR currently holds the highest exposure to BAH at an 8.70% weighting, followed by CIBR with a 3.67% weighting.

Cyberark Software Ltd. (NASDAQ: CYBR)

Israeli identity management company Cyberark occupies a privileged space in the IT security field, offering security and validation services to a broad array of industries. The stock has surged more than 76.75% in 2019, thanks largely to strong quarterly earnings reports and fiscal year guidance on track to exceed 2018’s numbers by 20% or more. According to the company’s latest investor release, licensing and maintenance/profession services represented the largest areas of growth for Cyberark over the first quarter of FY19.

CYBR currently holds the highest exposure to CYBR at a  4.54% weighting, followed by HACK with a 4.23% weighting.

Zscaler Inc. (NASDAQ: ZS)

Zscaler, an internet security company that just passed its first year on the Nasdaq, is higher on 2019 by 105.65%. Since IPOing in March 2018, shares of Zscaler are up nearly 400% from its IPO price of $16. Analysis of the company’s most recent earnings release from sell side firm Wedbush Securities highlighted Zscaler’s knack for expanding its contracts for native network security in an environment where companies and institutions are in desperate need of secure cloud migration services.

CYBR currently holds the highest exposure to ZS with an 8.73%, followed by CIBR with a 4.60% weighting.

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