- Top security stocks
Security-software stocks had a huge run in 2020. Investors may want to be more selective with their picks this year, wrote Goldman Sachs<https://www.barrons.com/quote/GS> in a Friday note.
- Security stocks got an extra kick in the year’s closing months from the cyberattack on <FireEye, U.S. Agencies Affected By Cyber Attack On Solar Winds Software> SolarWinds<https://www.barrons.com/quote/SWI> (ticker: SWI) that has affected a variety of companies and federal agencies.
- Goldman Sachs analyst Brian Essex noted that the average security stock he covers climbed 75% for the year, driven by a combination of the work-from-home trend, durable spending and companies’ adoption of software-as-a-service revenue models.
Essex also argued that the “Sunburst” hack on SolarWinds will continue to support security software spending in 2021.
“2020 was the worst year on record for cyber threats,” he wrote. “Fueled in part by the pandemic, elections, and a sudden shift to remote working environments, this record had already been achieved by the end of the second quarter. As a result, security remained the priority of CIOs through the year.”
He added that as the fallout from the Sunburst attack continues to become clear, more enterprise victims are likely to emerge. “We also anticipate greater scrutiny over how vendors develop, distribute and maintain their software as the scope of security extends beyond vendors themselves to customers that rely on the integrity of their platforms,” he wrote.
Essex offered several themes to play in the group for 2021.
They include companies with business models in transition:
* Ping Identity<https://www.barrons.com/quote/PING> (PING): He raised his rating on the identity-management company to Buy from Neutral. “We view Ping as a stock overlooked during the 2020 rally and expect 2020 headwinds will become tailwinds in 2021,” he wrote. “Conversations with industry participants indicate favorable demand for the company, and our most recent CIO survey indicates improving spending intentions. Essex raised his price target to $34 per share, from $29.
- “Additionally, a planned business split could make the resulting entities more attractive for potential investors, yielding a potentially better sum-of-the parts valuation in the process.” He raised his target to $80 from $66.
Longer-term “winners that invested in growth”:
* CrowdStrike<CrowdStrike Holdings Inc. Cl A Stock Price (CRWD) | Barron’s> (CRWD): This vendor has “the fastest growth in our coverage universe and some of the best unit economics as well,” he wrote. He raised his target to $240, from $186.
Core security plays with favorable product cycles:
* Palo Alto Networks<Palo Alto Networks Inc. Stock Price (PANW) | Barron’s> (PANW): The company is “taking share from legacy vendors while investing in best of breed next generation security technology.” Target raised to $408, from $310.
And companies whose shares are trading at a discount:
* McAfee<McAfee Inc. Cl A Stock Price (MCFE) | Barron’s> (MCFE): “Although the stock has underperformed since its recent IPO, we see multiple levers for upside while the stock remains at a meaningful discount.” Essex rates the company at Buy, with a $26 price target.
Essex has Sell ratings on a couple of firms in the sector as well:
* SecureWorks<https://www.barrons.com/quote/SCWX> (SCWX): He cut his rating on the stock to Sell from Neutral. “The company could see near-term upside from Services revenue, but we expect its [business] model transition could take longer than investors have an appetite for.” His target remains at $14, however.
All of the stocks Essex recommends traded higher on Friday, led by Ping, which rose 4.8% to $29.87. SecureWorks fell 4.5%, to $13.27. The S&P 500<https://www.barrons.com/quote/INDEX/US/S&P%20US/SPX> climbed 0.5%.