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In this article, we will discuss the 15 best cybersecurity stocks to buy heading into 2023. If you want to skip our detailed analysis of the cybersecurity industry and explore similar stocks, you can go directly to 5 Best Cybersecurity Stocks to Buy Heading into 2023.
The cybersecurity industry is experiencing rapid growth due to the increasing number of cyber-attacks and data breaches. As hackers become increasingly sophisticated in their attacks and technology becomes more pervasive, the need for effective cybersecurity solutions has grown. Companies and organizations of all sizes, from small businesses to large corporations, are investing heavily in cybersecurity solutions to protect their data and networks. The cybersecurity industry is a vital part of the modern economy, and its growth is expected to continue in the coming years. As organizations become increasingly reliant on digital technologies, the need for robust cybersecurity solutions will only increase.
The Cybersecurity Industry: An Analysis
According to a report by Grand View Research, the global cybersecurity market was worth $184.93 billion in 2021. The industry is expected to reach a value of $202.72 billion in 2022 and grow at a compound annual growth rate of 12% from 2022 to 2030, reaching a value of $500.70 billion by the end of the forecasted period. This growth is expected to be driven by the increase in cyber-attacks as businesses go digital and a surge in the usage of smart devices across the globe. In 2021, the defense/government segment held the dominant market share and the healthcare segment held the dominant revenue share of the global cybersecurity market. Region-wise, North America held the dominant market share in 2021, and Europe was the runner-up region. The APAC region is expected to grow at the fastest pace over the forecasted period, registering a CAGR of 15%.
Big tech companies such as Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are pouring hefty investments into cybersecurity companies. According to a report by CB Insights, cybersecurity funding doubled year over year in 2021 and amounted to over $25 billion. In this piece, we will discuss some of the best cybersecurity stocks to buy now.
Photo by Obie Fernandez on Unsplash
Our Methodology
To determine the best cybersecurity stocks to buy now, we studied industry analysis reports and identified key players operating in the space. We studied these companies in detail and reviewed their product pipelines and business models. We then selected companies with robust product pipelines, strong fundamentals, and positive market sentiment. Along with each stock, we have included analyst ratings, the hedge fund sentiment, and salient features that make them viable investment options to consider. These stocks are ranked according to their popularity among elite money managers.
Best Cybersecurity Stocks to Buy Heading into 2023
15. Qualys, Inc. (NASDAQ:QLYS)
Number of Hedge Fund Holders: 25
Qualys, Inc. (NASDAQ:QLYS) is a leading provider of cloud-based security and compliance solutions. Qualys, Inc. (NASDAQ:QLYS) is a trusted security and compliance partner for some of the world’s largest enterprises, including Fortune 500 companies, government agencies, and national healthcare institutions among others. The company is profitable and cash-rich and is one of the best cybersecurity stocks to buy heading into 2023. According to the company's balance sheet, Qualys, Inc. (NASDAQ:QLYS) has free cash flows of $177.8 million, a trailing twelve-month operating margin of 27.51%, and an ROE of 26.77%.
On November 3, Wedbush analyst Daniel Ives updated his price target on Qualys, Inc. (NASDAQ:QLYS) to $140 from $150 and reiterated an Outperform rating on the shares.
At the close of Q3 2022, 25 hedge funds were long Qualys, Inc. (NASDAQ:QLYS) and disclosed stakes worth $295.5 million. Of those, Fundsmith LLP was the most prominent investor in the company and disclosed a position worth $92.19 million.
Here is what Headwaters Capital had to say about Qualys, Inc. (NASDAQ:QLYS) in its second-quarter 2022 investor letter:
“Qualys, Inc. (NASDAQ:QLYS) was founded in 1999 and provides vulnerability management software to both SMBs and enterprise customers. Vulnerability management software provides a continuous view of security and compliance across all of a company’s assets including on-premise, end-points, cloud and mobile. The easiest way to think about QLYS’s original VM solution is that it provided a dashboard that monitored all potential threats to a network and helped IT departments prioritize which vulnerabilities were the highest risk. QLYS was a pioneer in the industry as they were one of the first companies to offer a cloud-based software as a service (SaaS) solution as opposed to the traditional license offerings that proliferated at the time. While QLYS’ VM software has always provided an industry leading dashboard to monitor weaknesses, it provided limited functionality to respond to these vulnerabilities. More recently, QLYS has increased the functionality of its software through the rollout of Detection and Response capabilities (VMDR) and extended detection and response (XDR) capabilities in late 2021.
The cybersecurity space has been marked by a preference of customers for point solution expertise as opposed to a winner take all solution. This market structure is driven by the complex nature of assets that need protection, the dynamic nature of security threats and the critical nature of cybersecurity, which leads to a customer preference for quality over cost. Historically, cybersecurity was best served by firewalls, which provided a ring fence around assets that were physically located on a network. Firewalls are increasingly becoming obsolete in the cybersecurity world as the network perimeter has effectively disappeared due to the growing adoption of SaaS solutions and new connected devices that connect to the network from multiple new endpoints. This trend has only accelerated following COVID. As more devices and software tools connect from outside of the traditional firewall perimeter, the importance of security monitoring tools such as VM, VMDR and XDR has increased. In many ways, vulnerability management is the foundation of cybersecurity as it provides the dashboard for monitoring all potential security gaps. QLYS’ software can provide critical data about which assets are exposed to specific threats and can increasingly help IT departments prioritize and remediate these vulnerabilities.
Understanding QLYS’s history is important to gaining confidence in QLYS’ ability to maintain revenue growth going forward. QLYS was almost perfectly positioned earlier this decade to take advantage of both the transition in the software market from license to SaaS solutions as well as the cybersecurity trend away from firewalls as devices increasingly moved beyond a physical perimeter. Given the large TAM, industry tailwinds and a market leading product, QLYS was able to growth revenues at a +20% CAGR from 2012-2018. Even more impressive, QLYS was able to accomplish this growth with limited investment in R&D or its sales force. R&D as a percentage of revenues declined from 22% in 2012 to 16% in 2018 while S&M declined from 40% in 2012 to 22% in 2018. Consequently, QLYS operates with one of the highest EBITDA margins in the industry at 45%. The ability for QLYS to post such consistent revenue growth despite under-investing in product development and sales is evidence of the strong competitive positioning of QLYS’ software and the critical nature of the product…” (Click here to read more)
Big tech companies that are heavily investing in cybersecurity include Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT).
14. Tenable Holdings, Inc. (NASDAQ:TENB)
Number of Hedge Fund Holders: 27
Tenable Holdings, Inc. (NASDAQ:TENB) is a leading provider of security solutions that help organizations reduce their cyber risk. On October 25, the company posted market-beating earnings for the fiscal third quarter of 2022. The company reported earnings per share of $0.15 and outperformed consensus by $0.12. The company generated a revenue of $174.85 million, up 26.10% year over year, and beat Wall Street expectations by $4.65 million. Tenable Holdings, Inc. (NASDAQ:TENB) has free cash flows of $104.5 million and is placed on our list of the best cybersecurity stocks to buy now.
On October 26, DA Davidson analyst Rudy Kessinger revised his price target on Tenable Holdings, Inc. (NASDAQ:TENB) to $47 from $53 and maintained a Buy rating on the shares.
At the end of the third quarter of 2022, 27 hedge funds held stakes in Tenable Holdings, Inc. (NASDAQ:TENB). The total value of these stakes amounted to $444.8 million. As of September 30, Greenvale Capital is the most prominent shareholder in the company and holds a position worth $135.7 million.
13. SentinelOne, Inc. (NYSE:S)
Number of Hedge Fund Holders: 30
SentinelOne, Inc. (NYSE:S) is a cutting-edge cybersecurity company that provides comprehensive endpoint protection for organizations of all sizes. The company’s platform offers a complete security suite that includes automated threat detection and response, endpoint protection, vulnerability management, cloud security, and advanced analytics. The stock is ranked among the best cybersecurity stocks to buy now and is worth $4.22 billion on the open market, as of December 2.
On November 22, Morgan Stanley analyst Hamza Fodderwala updated his price target on SentinelOne, Inc. (NYSE:S) to $30 from $40 and reiterated an Overweight rating on the shares. This November, BTIG analyst Gray Powell revised his price target on SentinelOne, Inc. (NYSE:S) to $25 from $38 and maintained a Buy rating on the shares.
At the end of Q3 2022, 30 hedge funds were bullish on SentinelOne, Inc. (NYSE:S) and disclosed positions worth $1.33 billion. This is compared to 26 positions in the previous quarter with stakes worth $1.23 billion. The hedge fund sentiment for the stock is positive. As of September 30, Third Point is the largest investor in the company and has stakes worth $485.6 million.
12. CACI International Inc. (NYSE:CACI)
Number of Hedge Fund Holders: 29
CACI International Inc. (NYSE:CACI) is an American provider of information technology services and professional services, primarily to the United States federal government. The company is headquartered in Arlington, Virginia. CACI International Inc. (NYSE:CACI) has a long history of providing cybersecurity solutions and services to the U.S. government and is placed among the best cybersecurity stocks to buy now. As of December 2, the stock has gained 15.86% year to date.
On August 31, William Blair analyst Louie DiPalma reiterated an Outperform rating on CACI International Inc. (NYSE:CACI). On October 26, the company announced earnings for the first quarter of fiscal 2023. CACI International Inc. (NYSE:CACI) reported an EPS of $4.36 and beat estimates by $0.11. The company's revenue for the quarter amounted to $1.61 billion, up 7.70% year over year and ahead of Wall Street estimates by $20.28 million.
At the close of the third quarter of 2022, 29 hedge funds were bullish on CACI International Inc. (NYSE:CACI) and disclosed stakes of $393 million. This is compared to 22 hedge funds in the preceding quarter with stakes worth $393.8 million. As of September 30, Horizon Asset Management is the most prominent shareholder in the company and has a position worth $118.27 million.
Here is what Upslope Capital had to say about CACI International Inc (NYSE:CACI) in its third-quarter 2022 investor letter:
“CACI International Inc (NYSE:CACI) provides specialized technology and consulting services, primarily to U.S. defense and intelligence agencies. The U.S. Army is CACI’s single largest customer. This position replaces BWXT in Upslope’s “defense basket” (articulated in Q1 on p. 4). CACI’s business is mostly split across Expertise (providing talent to government agencies – e.g. software engineers) and Technology (design and delivery of specific technology-oriented services and products, including for example, battlefield hardware). The company offers its services and products in support of both day-to-day agency operations and specific missions.
At a high-level, CACI reminds me of another Upslope long in an unrelated sector: Silgan Holdings (packaging/dispensing and food can business). Both are truly sleepy value stocks that trade for low doubledigit earnings multiples, but have a strong history of steady value creation and free cash flow per share growth. Both the stocks and underlying businesses appear very well-positioned for the uncertain macro (or geopolitical, in CACI’s case) environment we’re likely to face in the years ahead. Other notable thesis points for CACI specifically:
Long-term Geopolitical & Other Tailwinds – like other components of Upslope’s defense basket, CACI should benefit from an attractive defense spending environment for years to come. CACI should also benefit from IT modernization efforts in U.S. government agencies, as well as its strength in cyber/electronic warfare offerings…” (Click here to read the full text)
11. Check Point Software Technologies Ltd. (NASDAQ:CHKP)
Number of Hedge Fund Holders: 32
Check Point Software Technologies Ltd. (NASDAQ:CHKP) is a leading international provider of cybersecurity and cyber intelligence solutions. Founded in 1993, Check Point Software Technologies Ltd. (NASDAQ:CHKP) has grown to become one of the world’s largest cybersecurity providers and is one of the best cybersecurity stocks to buy now. The company provides a comprehensive portfolio of products and services that enable organizations to protect their networks, data, and applications against cyber threats. In addition, the company also offers cloud-based security services and endpoint protection.
Wall Street analysts are bullish on Check Point Software Technologies Ltd. (NASDAQ:CHKP). This October, Truist analyst Joel Fishbein updated his price target on Check Point Software Technologies Ltd. (NASDAQ:CHKP) to $130 from $145 and reiterated a Buy rating on the shares. On October 28, Mizuho analyst Gregg Moskowitz raised his price target on Check Point Software Technologies Ltd. (NASDAQ:CHKP) to $135 from $130 and maintained a Neutral rating on the shares.
At the end of the third quarter of 2022, 32 hedge funds were long Check Point Software Technologies Ltd. (NASDAQ:CHKP) and disclosed a position worth $680.4 million in the company. Of those, D E Shaw was the top investor in the company and held a position worth $105.28 million.
10. CyberArk Software Ltd (NASDAQ:CYBR)
Number of Hedge Fund Holders: 32
CyberArk Software Ltd (NASDAQ:CYBR) is a leading global cybersecurity company that specializes in Privileged Access Management (PAM). The company provides solutions to help organizations protect their privileged accounts, networks, systems, and other sensitive data from malicious cyberattacks. The company's solutions are used by Fortune 500 companies, government agencies, and other organizations across the globe. CyberArk Software Ltd (NASDAQ:CYBR) is a leader in the development of PAM technology and is ranked among the best cybersecurity stocks to buy now. As of December 2, the company has free cash flows of $6.06 billion on the open market and has free cash flows of over $39 million.
This October, Barclays analyst Saket Kalia raised his price target on CyberArk Software Ltd (NASDAQ:CYBR) to $180 from $175 and maintained an Overweight rating on the shares. On October 19, Baird analyst Shrenik Kothari took coverage of CyberArk Software Ltd (NASDAQ:CYBR) with an Outperform rating and a $182 price target.
At the end of the third quarter of 2022, 32 hedge funds were eager on CyberArk Software Ltd (NASDAQ:CYBR) and held collective positions of $775.3 million. This is compared to 29 hedge funds in the previous quarter with stakes worth $569.3 million. The hedge fund sentiment for the stock is positive. As of September 30, RGM Capital is the largest investor in CyberArk Software Ltd (NASDAQ:CYBR) and has a position worth $166.6 million.
9. Akamai Technologies, Inc. (NASDAQ:AKAM)
Number of Hedge Fund Holders: 32
Akamai Technologies, Inc. (NASDAQ:AKAM) is a leading American content delivery network, cybersecurity, and cloud service company, providing web and internet security services across the globe. The company has a strong cash position and is profitable. According to the company's balance sheet, Akamai Technologies, Inc. (NASDAQ:AKAM) has free cash flows of over $862.8 million and a trailing twelve-month operating margin of 20.99%. The stock is one of the best cybersecurity stocks to buy now.
Wall Street is bullish on Akamai Technologies, Inc. (NASDAQ:AKAM). On November 9, KeyBanc analyst Thomas Blakey revised his price target on Akamai Technologies, Inc. (NASDAQ:AKAM) to $110 from $116 and reiterated an Overweight rating on the shares. This November, Evercore ISI analyst Amit Daryanani updated his price target on Akamai Technologies, Inc. (NASDAQ:AKAM) to $105 from $110 and maintained an Outperform rating on the shares.
At the end of Q3 2022, 32 hedge funds were long Akamai Technologies, Inc. (NASDAQ:AKAM) and held positions worth $266.4 million in the company. Of those, Arrowstreet Capital was the top investor in the company and disclosed a position of $57.1 million.
8. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Holders: 35
Palantir Technologies Inc. (NYSE:PLTR) is a leader in the cybersecurity market that is leveraging big data analytics to build and deploy software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations. On November 7, the company posted earnings for the fiscal third quarter of 2022. The company reported an EPS of $0.01 and generated a revenue of $477.8 million, up 21.86% year over year and ahead of Wall Street estimates by $2.92 million. Palantir Technologies Inc. (NYSE:PLTR) is placed high among the best cybersecurity stocks to buy now.
On October 8, Raymond James analyst Brian Gesuale updated his price target on Palantir Technologies Inc. (NYSE:PLTR) to $15 from $20 and maintained a Strong Buy rating on the shares.
At the close of Q3 2022, 35 hedge funds were bullish on Palantir Technologies Inc. (NYSE:PLTR) and disclosed positions worth $431.9 million in the company. Of those, Renaissance Technologies was the top investor in the company and held a position worth $269.3 million.
7. Splunk Inc. (NASDAQ:SPLK)
Number of Hedge Fund Holders: 46
Splunk Inc. (NASDAQ:SPLK) is a technology and software company that specializes in IT operations analytics and big-data intelligence. It helps customers monitor, investigate, and act on their data in real-time. The company also provides cybersecurity software through Splunk Solutions which enables cybersecurity teams to streamline the security operations workflow, accelerate threat detection and response, enhance threat visibility, and scale resources to increase analyst productivity through machine learning and automation. The company's products are used by customers in various industries, including finance, health care, retail, media, security, and government. Splunk Inc. (NASDAQ:SPLK) is one of the best cybersecurity stocks to buy now.
On December 1, Barclays analyst Raimo Lenschow raised his price target on Splunk Inc. (NASDAQ:SPLK) to $110 from $100 and maintained an Overweight rating on the shares. This December, RBC Capital analyst Matthew Hedberg raised his price target on Splunk Inc. (NASDAQ:SPLK) to $110 from $105 and reiterated an Outperform rating on the shares.
At the close of the third quarter of 2022, 46 hedge funds held stakes in Splunk Inc. (NASDAQ:SPLK). The total value of these stakes amounted to $828 million. As of September 30, Whale Rock Capital Management is the largest investor in Splunk Inc. (NASDAQ:SPLK) and has a position worth $176.7 million.
Here is what Carillon Tower Advisers had to say about Splunk Inc. (NASDAQ:SPLK) in its second-quarter 2022 investor letter:
“Splunk Inc. (NASDAQ:SPLK), a leader in artificial intelligence solutions for corporate data logs and security, fell in a weak tech group. The company has been transitioning to more of a software-as-a service (SaaS) business model that has, we believe, temporarily depressed earnings and cash flow. We like Splunk’s leadership position in the industry and the company has installed a new CEO and is rolling out new features and products.”
6. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 47
Fortinet, Inc. (NASDAQ:FTNT) is one of the world's leading providers of cybersecurity solutions. Founded in 2000, Fortinet, Inc. (NASDAQ:FTNT) has become a leader in the industry by providing innovative and comprehensive security solutions for businesses and governments across the world. Fortinet, Inc. (NASDAQ:FTNT) has a strong cash position and is ranked among the best cybersecurity stocks to buy now. According to the company's balance sheet, Fortinet, Inc. (NASDAQ:FTNT) has free cash flows of $1.16 billion.
On November 3, Raymond James analyst Adam Tindle revised his price target on Fortinet, Inc. (NASDAQ:FTNT) to $60 from $70 and maintained an Outperform rating on the shares. This November, Oppenheimer analyst Ittai Kidron updated his price target on Fortinet, Inc. (NASDAQ:FTNT) to $70 from $80 and reiterated an Outperform rating on the shares.
At the end of the third quarter of 2022, 47 hedge funds disclosed ownership of stakes in Fortinet, Inc. (NASDAQ:FTNT). The total value of these stakes amounted to $1.74 billion. This is compared to 43 positions in the previous quarter with stakes worth $1.38 billion. The hedge fund sentiment for the stock is positive. As of September 30, Marshall Wace LLP is the largest investor in Fortinet, Inc. (NASDAQ:FTNT) and has a position worth $238.3 million.
Governments and businesses across the globe are putting billions of dollars into cybersecurity technology. Some of the most notable investors include Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT).
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Disclosure: None. 15 Best Cybersecurity Stocks to Buy Heading into 2023 is originally published on Insider Monkey.
