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Should You Invest in Software Security Stocks?

Aug 02 2011

Image representing Symantec as depicted in Cru...

Image via CrunchBase

Software security stocks have taken a dive in the wake of the recent attacks on computer networks. Almost all stocks have been hurt by these developments. Companies such as Symantec Corp., Fortinet Inc., and Sourcefire Inc. have suffered losses. They are trading at all-time lows this fiscal year. All this goes to show that even though some investors associate turmoil and controversy with big investment opportunities, this is not always the case. Those selling these stocks short are now moving away from them, because they are starting to see them as overpriced. Security stock professionals warn that the sales potential of these stocks is somewhat limited.

So is it a good idea to invest in software security stocks? Many different factors would be involved in developing and perfecting this kind of strategy. For starters, security companies are spending a lot of time, effort, and money to fill up holes in software and networks, only to witness hackers breaking in by other means. These attacks are becoming more and more high-profile. A group by the name of Lulz Security recently claimed to have hacked into many important government and corporate sites, including those of the CIA, the Senate, Sony and the British police. The world was momentarily abuzz with this development. Hacker threats are on the rise, with companies like Symantec reporting having tracked 286 million new computer threats last year. Hackers, it seems, are trying to access and get hold of specific types of information.

Is somebody making a profit from all this? With the exception of a very small number of companies, the answer is no, not really. Software security companies suffer from the fact that the market for large businesses is mostly saturated. Companies that were giants in the 1990s, such as Symantec, are now witnessing limited growth prospects. These are contingent on the company’s ability to offer new products and services that could prevent potential threats. It is worth reiterating that the shares of many security software companies seem overvalued. One company demonstrating some success is Sourcefire Inc., which posted a growth of 13 per cent this year. Institutional owners are seeing this as a bull market, while short sellers are being more bearish in their views. Such a trend also applies to other companies in the field, such as Fortinet and Check Point Software Technologies Ltd.

Having said that, which stocks should one invest in, if any? Experts recommend companies like McAfee, Novell, VASCO Data Security International Inc., Websense Inc., and Juniper Networks, Inc. These corporations have market caps in excess of $500 million.

Melissa Dean writes about Canadian Credit  Cards, Reward Credit Cards, Air Miles Credit Cards, and other financial products.

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