Earlier this year, we wrote about how cyber security stocks were gaining momentum thanks to the numerous cyber-attacks that were recorded last year. Since then, things have escalated quite quickly with last week culminating in the biggest ransomware attack to ever hit the internet.
The ransomware is believed to have possibly originated from cyber tools stolen from the United States National Security Agency (NSA) by hackers. According to security researchers at Kaspersky lab, more than 45,000 instances of the attack spanning across 99 countries including China, India, United Kingdom, Russia and Ukraine were initially recorded before spreading on to the U.S and South America.
To date it is estimated that the ransomware identified as Wanna Decryptor or WannaCry has infected more than 300,000 computers worldwide with countries in Europe being the hardest hit. Among the most notable targets of WannaCry was the U.K Health Service after a string of hospitals fell victim to the attack.
Basically, patient records, appointment schedules, internal phone lines and emails were rendered inaccessible and communications between computers and medical equipment were brought down though the hospitals reported that no patient data had been compromised.
The same malicious attack also hit companies in Spain and Portugal including telephone company Telefonica while in the U.S international shipping company FedEx was affected. According to researchers, the attack makes use of an exploit called ETERNALBLUE developed by the NSA to break through Windows security.
As The Intercept details in their report, “Today’s WannaCry attack appears to use NSA exploit codenamed ETERNALBLUE, a software weapon that would have allowed the spy agency’s hacker to break into any of millions of Windows computers by exploiting a flaw in how certain versions of windows implemented a network protocol commonly used for file sharing and to print.
Even though Microsoft (NASDQ: MSFT) fixed the ETERNALBLUE vulnerability in a March update, the safety provided there relied on computer users keeping their systems current with the most recent update.
New malware already on the loose
For those who may now be under the impression that the worst is behind us, nothing could be further from the truth. Nicolas McKerall, a threat researcher at Check Point Software Technologies (NASDAQ: CHKP) told Benzinga in an interview, “I’m sure they will be rapidly creating new variants and techniques to try and capitalize on people who aren’t able to secure their organization in time.”
As a matter of fact, the latest data from Check Point Software cited by Reuters reveals that a new variant of the WannaCry ransomware is already on the loose. This essentially means that, as we are still reeling from the impact of the first attack a second one could be already well underway and experts think it could be far more potent than WannaCry.
Global cybersecurity company Proofpoint has now revealed the existence of a second malware identified as Adylkuzz. Adylkuzz is another large scale stealthy cyber-attack with the ability to dwarf WannaCry though it has a couple of differences.
Instead of completely disabling an infected computer by encrypting data and seeking ransom payment, this malware uses the machines it infects to mine in a background task, a virtual currency similar to Bitcoin called Monero and then transfers the money created to the authors.
In a blog post, Proofpoint said that symptoms of the Adylkuzz attack include loss of access to shared Windows resources and degradation of PC and server performance, effects which a huge number of users may not take notice of immediately. It uses the same hacking tools developed by the NSA and appears to may have been active ever since April 24 according to the cybersecurity firm.
So far, the Pure Funds ISE Cybersecurity ETF has risen by more than $5.9 billion since the end of last week signaling investors’ belief that the cybersecurity market is poised for further growth. System software companies are the biggest industry sector in the fund with a 64.19 percent weighting with the top three holdings being FireEye (NASDAQ: FEYE), Qualys Inc (NASDAQ: QLYS) and Imperva Inc (NASDAQ: IMPV).
For investors looking to take advantage of the renewed momentum in the cybersecurity industry with a short term perspective, this ETF offers a great way to do so. The fund is composed of companies with market capitalization as low as $100 million implying that it contains a number of growth stocks which have the potential to do exceptionally with these tailwinds in play.
If an investor is looking to invest with a more long term view in mind, focusing on individual cybersecurity companies could prove to be a much better approach. Cisco Networks (NASDAQ: CSCO) for instance appears to be a strong choice especially after analysts at Morgan Stanley recently upgraded the company to ‘Buy’ status. They based their recommendation on the fact that they expect more companies and institutions to increase their focus on cybersecurity from now on.
Although Cisco has erased most of the gains it made since news of the ransomware attack, this was mainly due to its recently released quarterly earnings. In spite of beating analysts’ expectations, shares pulled back by close to 7 percent after the company revealed that its revenue forecast for the current quarter would post a much larger decline than previously expected.
In our estimation, the mild sell off following the earnings release should give long term investors a great entry point into a company that is sure to be a key player in a market expected to be worth at least $170 billion by 2020.
Alternatively, investors can also consider Palo Alto Networks (NYSE: PANW) although shares have already gained about 10 percent over the past two weeks. One important thing that investors need to be aware of here is that the stock is still in recovery mode after declining 30 percent following its earnings release back in March. With Palo Alto Networks scheduled to report earnings at the end of this month, investors should be well prepared to deal with any potential fallout arising from any perceived weakness.
In conclusion, we continue to expect that the increased focus on cybersecurity will help drive valuations higher in the sector and investors should be on the lookout for profiles of companies that we believe can effectively tap into this opportunity.
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