It seems like every other day there is an announcement of a data security breach – in the first half of 2014 there were 395 breaches alone with some major companies being compromised like Target, Niemen Marcus and Nuclear Regulatory Authority. Three separate universities (Maryland, Wisconsin and Iowa State) were victims of security breaches where the hackers gained access to Social Security and credit card numbers, health records and other sensitive information. According to Experian there is a deadline of October 2015 for retailers to upgrade to point-of-sale systems which are more difficult to clone and create fraud therefore they are expecting the volume of cybercriminals to increase in 2015 to compromise as much as possible while they still can. As in any crisis, there is a solution – and a trading vehicle to profit from this unfortunate trend.
There are many choices of individual stocks you could purchase each priced differently and specializing in a different aspect of cyber security with the granddaddy of them all being Palo Alto Networks (PANW). Palo Alto Networks trades at $191.19 so those with smaller portfolios might be stifled as to the quantity they could purchase. Therefore I favor the ETF approach for this sector. Purchasing an ETF offers the investor an easy way to own a diversified range of assets within one basket and it is bought and sold like a single stock with nice liquidity. ETF’s are pretty transparent – you know what is held in the basket real time and can be long or short and even trade options.
Started in November 2014 the PureFunds ISE Cyber Security ETF (HACK) is an equal-weighted index that targets both hardware and software on one tier and cybersecurity service companies on the second tier. This ETF has international exposure and its top 5 holdings are FireEye (FEYE), CyberArk Software Ltd (CYBR), Infoblox Inc. (BLOX), Palo Alto Networks, Inc. (PANW), Fortinet (FTNT). Considering one share of PANW trades at $191 and HACK trades at $31.50 I consider HACK to be the better option as you can hold it in an appropriate size and get exposure to the other leading stocks in the sector as well. It eliminates the “right church wrong pew” syndrome.
Let’s take a look at the chart:
Looking left you can see that the 50 day moving average has historically been a relevant support and price is there now. The 50 day moving average continues to meander to the upside. Moving Average Convergence Divergence (MACD) is ready to cross up creating a buy signal. The histogram has been stair stepping up which is a bullish indicator. Relevant Strength is improving and the stochastics are on a buy signal as price has consolidated on the 50 day moving average. As HACK is sitting on support I consider it to be a low risk entry, keeping a stop right under the 50 day moving average.
