In this article, we will take a look at the 10 most undervalued cybersecurity stocks to buy according to hedge funds.
Relentless cyber attacks from hackers, continuously evolving techniques of cyber criminals and the risks and costs attached with cybersecurity-related problems are causing companies around the world to take cybersecurity extremely seriously and spend a fortune in making sure they don’t become victim to the next big cyber attack. A detailed report by WSJ took a look at how the changing landscape of global information and online security industry is affecting the mindset of top-level executives, especially Chief Information Officers. The report cited James Beeson, Cigna’s Chief Information Security Officer, who said:
“Having the CIO as the champion for cybersecurity is absolutely critical. You’ve got to work directly with the business. You’ve got to realize that cybersecurity and making decisions about mitigation is really a balancing act.”
Part of the reason why companies have started to take cybersecurity extremely seriously is pressure from governments, regulators and investors. The SEC published some rules in this regard back in 2022 which the body is expected to finalize in the coming months. The SEC wants company board members to have expertise and clear policies regarding cybersecurity and how to protect company and investor assets from cyber attacks.
After these rules, companies will have to make sure they have qualified and experienced members in their boards who know the gravity of cyber attacks and strategies to protect against such attacks.
This cybersecurity emergency is proving to be extremely profitable for cybersecurity stocks.
Challenges to Endpoint Security Systems and Evolving Cyber Attacks
On the other hand hackers are swiftly finding new ways to bypass advanced cybersecurity tools. One of the best and most efficient ways to detect and prevent against cyber attacks is endpoint security systems and software. However, a Bloomberg report recently cited data from Mandiant, which said the company investigated 84 instances where endpoint security software were tampered with or disabled. For instance, in December 2022, Microsoft revealed that attackers were able to get the company’s systems apply its seal of authenticity to malware, which was then used to disable the company’s EDR and other security tools on victim networks.
Like other industries, AI is also affecting the cybersecurity industry and companies have already started using generative AI tools like ChatGPT to assist their employees in addition to deploying complex and technical AI-based cybersecurity tools to beef up their fences against hackers. Recently, toy company Mattel revealed that it has started experimenting with generative AI tools like ChatGPT to help its cybersecurity teams. However, the company is aware of the risks involved in using such tools. According to a WSJ report, Mattel’s chief information security officer Tom Le said that generative AI tools perform tasks like parsing large datasets and help cyber analysts, giving them time to do more important tasks.
However, the executive said that the company is aware of the threats involved in using such tools and that’s why it hasn’t deployed these tools at a broader level.
“Right now, anything that I would use the AI engine for, it would only be to complement what I already have,” Le reportedly said.
Earlier this year new under-discussion policies from the Biden administration made rounds in the media that sought to hold software companies and device makers responsible in case of cyber attacks. According to media reports, the policy document said:
“Responsibility must be placed on the stakeholders most capable of taking action to prevent bad outcomes, not on the end-users that often bear the consequences of insecure software nor on the open-source developer of a component that is integrated into a commercial product.”
The number of cyber attacks keeps growing as hackers continue to adapt and learn new ways to attack user data and online assets. A detailed report on NASDAQ said that the total number of major cyber attacks reported in the news were higher in every month in 2020 (except April), when compared with 2019 and 2018. The most important thing to note in the report is the cost of data breaches. Cyber attacks don’t just affect the reputation of companies. They cost companies a fortune which is often more than the investments that they can make for preventive measures. The NASDAQ report cited data from research done by IBM and Ponemon Institute which says that average total cost of a data breach in 2021 was $4.24 million in 2021, up from $3.86 million in 2020. The report also said that few industries are more prone to cyber attacks. These industries include healthcare, financial, and pharmaceutical industries.
Given this backdrop more and more analysts are growing bullish on cybersecurity stocks and believe they are good bets for long-term investors. Recently, Catharine Trebnick, senior research analyst at Rosenblatt Securities, said in an interview with BNN Bloomberg that cybersecurity stocks can grow as much as over 20% amid deal-making in the industry and growing demand. Specifically, Trebnick said she’s bullish on Palo Alto Networks Inc. (NYSE:PANW), Fortinet Inc. (NASDAQ:FTNT) and CrowdStrike Holdings Inc. (NASDAQ:CRWD).
Photo by Obie Fernandez on Unsplash
Our Methodology
For this article we scanned Insider Monkey’s database of 943 hedge funds and their holdings and picked the most popular cybersecurity stocks among these funds with PE ratios less than 25 as of June 30. The sector average PE ratio for the information technology services sector is about 26. With each stock, we have mentioned the number of hedge fund investors.
Most Undervalued Cybersecurity Stocks To Buy According To Hedge Funds
10. Wipro Limited (NYSE:WIT)
Number of Hedge Fund Holders: 10
India-based IT consulting company Wipro Limited (NYSE:WIT) offers a variety of products and services related to cybersecurity, specifically in identity management, third-party management, risk management and Cloud security domains. Wipro Limited (NYSE:WIT)’s PE ratio as of June 30 is 18.92.
A total of 10 hedge funds tracked by Insider Monkey had stakes in Wipro Limited (NYSE:WIT) as of the end of the first quarter of 2023. The biggest stakeholder of Wipro Limited (NYSE:WIT) during this period was Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners which owns a stake worth about $11 million.
In addition to WIT, hedge funds also like Palo Alto Networks Inc. (NYSE:PANW), Fortinet Inc. (NASDAQ:FTNT) and CrowdStrike Holdings Inc. (NASDAQ:CRWD).
9. Infosys Limited (NYSE:INFY)
Number of Hedge Fund Holders: 26
Infosys Limited (NYSE:INFY) is a notable name in the cybersecurity-related consulting industry. Infosys Limited (NYSE:INFY)’s PE ratio as of June 30 stands at 22.99.
Infosys Limited (NYSE:INFY) is however getting ratings downgrade from analysts. In June Susquehanna Financial Group downgraded the stock to Negative. While the firm’s analysts acknowledged that Infosys Limited (NYSE:INFY) is one of the great tech companies in the world, they indicated their concerns regarding competitive advantages decreasing amid “architectural changes.”
8. Check Point Software Technologies Ltd. (NASDAQ:CHKP)
Number of Hedge Fund Holders: 28
Israel-based Check Point Software Technologies Ltd. (NASDAQ:CHKP) offers Cloud and endpoint security solutions. Its solutions include VPNs, threat detection and prevention, forensics, endpoint detection and response (EDR), and remote access VPN solutions.
As of the end of the March quarter, 28 hedge funds tracked by Insider Monkey had stakes in Check Point Software Technologies Ltd. (NASDAQ:CHKP).
Here is what Diamond Hill International Fund Concentrated Fund has 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. Akamai Technologies, Inc. (NASDAQ:AKAM)
Number of Hedge Fund Holders: 30
Akamai Technologies, Inc. (NASDAQ:AKAM) offers content delivery networks and Cloud security services. Akamai Technologies, Inc. (NASDAQ:AKAM) ranks 7th in our list of the best undervalued cybersecurity stocks to buy now. In May Akamai Technologies, Inc. (NASDAQ:AKAM) posted its first quarter results. Akamai Technologies, Inc. (NASDAQ:AKAM)’s EPS in the quarter came in at $1.40 per share, beating estimates of $1.32. Revenue in the quarter jumped about 1.4% year over year to $916 million, surpassing estimates of $912.13 million.
As of the end of the first quarter of 2023, 30 hedge funds tracked by Insider Monkey had stakes in Akamai Technologies, Inc. (NASDAQ:AKAM). The total worth of these hedge fund stakes was about $582 million. The biggest hedge fund stakeholder of Akamai Technologies, Inc. (NASDAQ:AKAM) was Paul Marshall and Ian Wace’s Marshall Wace LLP which owns a $94.4 million stake in the company.
6. Cognizant Technology Solutions Corp. (NASDAQ:CTSH)
Number of Hedge Fund Holders: 32
IT services and consulting company Cognizant Technology Solutions Corp. (NASDAQ:CTSH) offers a variety of solutions in the cybersecurity space. Cognizant Technology Solutions Corp. (NASDAQ:CTSH)’s cyber threat defense (CTD) platform allows companies to evaluate the risks to their software products and solve them. Cognizant Technology Solutions Corp. (NASDAQ:CTSH)’s Security Operations Centers (SOCs) also helps companies fight cyber threats.
In May Cognizant Technology Solutions Corp. (NASDAQ:CTSH) posted Q1 results. Adjusted EPS in the quarter came in at $1.11, beating estimates by $0.06. Revenue in the quarter totaled $4.8 billion, beating estimates by $70 million.
Like Palo Alto Networks Inc. (NYSE:PANW), Fortinet Inc. (NASDAQ:FTNT) and CrowdStrike Holdings Inc. (NASDAQ:CRWD), CTSH is a notable cybersec stock.
5. Gen Digital Inc. (NASDAQ:GEN)
Number of Hedge Fund Holders: 32
Shares of Gen Digital Inc. (NASDAQ:GEN), previously NortonLifeLock, have lost about 14% year to date. Gen Digital Inc. (NASDAQ:GEN)’s PE ratio of 8.58 as of June 30 shows its valuation is currently attractive. Gen Digital Inc. (NASDAQ:GEN) is behind some of the most famous antivirus and data protection software solutions including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender, and CCleaner.
In May, Evercore ISI started covering GEN stock with an Outperform rating. Evercore ISI analyst Peter Levine said in his note that Gen Digital Inc. (NASDAQ:GEN) is not only an anti-virus company but “the leading consumer cybersecurity platform” with “best of breed” tools.
As of the end of the first quarter of 2023, 32 hedge funds tracked by Insider Monkey had stakes in Gen Digital Inc. (NASDAQ:GEN). The biggest stakeholder of Gen Digital Inc. (NASDAQ:GEN) during this period was Jeffrey Smith’s Starboard Value LP which owns a $325 million stake in the company.
4. Juniper Networks, Inc. (NYSE:JNPR)
Number of Hedge Fund Holders: 33
Juniper Networks, Inc. (NYSE:JNPR) sells network and Cloud security hardware and software solutions. Juniper Networks, Inc. (NYSE:JNPR)’s PE ratio as of June 30 is 20.71. Juniper Networks, Inc. (NYSE:JNPR) has gained about 10% over the past 12 months.
In April Juniper Networks, Inc. (NYSE:JNPR) posted first quarter results. Adjusted EPS in the quarter totaled $0.48 beating estimates by $0.05. Revenue in the period came in at $1.37 billion, beating estimates by $30 million.
Citi recently started covering Juniper with a Buy rating, citing Juniper Networks, Inc. (NYSE:JNPR)’s AI potential and gross margin expansion. Citi gave a $38 price target to Juniper Networks, Inc. (NYSE:JNPR). Citi analyst said that they expect gross margin expansion at Juniper due to supply chain normalization and software sales mix.
Juniper Networks, Inc. (NYSE:JNPR) however saw a sharp decline in hedge fund sentiment in the first quarter. A total of 33 hedge funds in Insider Monkey’s database reported owning stakes in Juniper Networks, Inc. (NYSE:JNPR) as of the end of March, compared to 44 hedge funds in the previous quarter.
3. Leidos Holdings Inc. (NYSE:LDOS)
Number of Hedge Fund Holders: 35
Leidos Holdings Inc. (NYSE:LDOS) sells defense, IT, engineering, and aviation-related solutions. Leidos Holdings Inc. (NYSE:LDOS) offers several solutions and approaches in the cybersecurity space. Its PACKIT™ (Proven, Analytic-Centric Kill Chain Implementation and Transformation) solutions help businesses improve their cybersec posture. Leidos Holdings Inc. (NYSE:LDOS) also offers various solutions in risk management and cyber analytics domains.
Leidos Holdings Inc. (NYSE:LDOS)’s PE ratio as of June 30 stands at 18.15. As of the end of the first quarter of 2023, 35 hedge funds tracked by Insider Monkey had stakes in Leidos Holdings Inc. (NYSE:LDOS). The most notable stakeholder of Leidos Holdings Inc. (NYSE:LDOS) during this period was Anand Parekh’s Alyeska Investment Group which owns a $95.2 million stake in the company.
Wedgewood SMID Cap Strategy made the following comment about Leidos Holdings, Inc. (NYSE:LDOS) in its Q1 2023 investor letter:
“Top performance detractors for the quarter include First Republic Bank, Texas Pacific Land, Leidos Holdings, Inc. (NYSE:LDOS), Helen of Troy and IAA. Finally, and unfortunately—as we’ve discussed in these letters previously in commentary on Leidos – it appears a new Cold War may be emerging, and we believe this will spur long-term demand for the U.S. military, industrial, and energy industries, as we already have seen on the energy front, especially, with exports to European allies rising significantly since Russia’s invasion of Ukraine.”
2. Hewlett Packard Enterprise Company (NYSE:HPE)
Number of Hedge Fund Holders: 37
Hewlett Packard Enterprise Company (NYSE:HPE) is one of the best undervalued cybersecurity stocks to buy according to hedge funds. Hewlett Packard Enterprise Company (NYSE:HPE) offers several cybersecurity solutions. Its GreenLake platform for Cloud security is getting a lot of popularity. Hewlett Packard Enterprise Company (NYSE:HPE)’s PE ratio as of June 30 stands at 21.70.
As of the end of the first quarter of 2023, 37 hedge funds tracked by Insider Monkey had stakes in Hewlett Packard Enterprise Company (NYSE:HPE). The biggest hedge fund stakeholder of Hewlett Packard Enterprise Company (NYSE:HPE) was Richard S. Pzena’s Pzena Investment Management which owns a $208 million stake in the company.
1. Cisco Systems, Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 61
VPNs, secure web gateways, endpoint security solutions, firewalls, Cloud security solutions – Cisco Systems, Inc. (NASDAQ:CSCO) provides all sorts of cybersecurity products and services. It is also one of the most popular stocks among the elite hedge funds tracked by Insider Monkey. As of the end of the first quarter of 2023, 61 hedge funds tracked by Insider Monkey had stakes in Cisco Systems, Inc. (NASDAQ:CSCO). The biggest stakeholder of Cisco Systems, Inc. (NASDAQ:CSCO) during this period was AQR Capital Management of Cliff Asness which had a $493 million stake in the company.
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Disclosure: None. 10 Most Undervalued Cybersecurity Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
