One strategy for taking advantage of bear markets is to use falling prices as an opportunity to buy stocks in sectors with an improving outlook. Cybersecurity is an example of this, as the industry continues to grow despite unfavorable economic conditions. Checkpoint (CHKP) and Fortinet (FTNT) are 2 of the leading stocks in the industry.
Despite the stock market rallying more than 10% over the past 2 weeks, it is still far from certain that a new bull market has started. So far, the Fed’s rate hikes have done some damage, but not too much, to jobs and corporate profits.
However, inflation has also remained stubbornly high, meaning these high rates will remain at least for the next 3-6 months. At this point, it is likely that incomes will start to feel impacted and the unemployment rate should rise, which would initiate the next leg of the bear market.
In these difficult circumstances, investors should focus on companies and sectors whose prospects will improve regardless of economic conditions. One example is cybersecurity, as the increasing digitization of the world only increases the urgency and importance of the sector.
In fact, these companies continue to generate earnings growth while their Total Addressable Market (TAM) continues to grow at a healthy pace. It is a necessity for every business to secure its cloud infrastructure and IT stack which are increasingly becoming an integral part of daily operations. It is also an area of importance for national security because cyberspace is another frontier that countries fight over. Given the bear market in equities and the improving outlook for cybersecurity stocks, investors should consider buying these 2 stocks:
CHKP is a security-as-a-service provider, targeting large and medium enterprises to defend, archive and organize their sensitive data. It offers threat protection, email security, cloud security, threat detection, and solutions to enable secure communication.
The need for IT and email security will only grow in the coming years, and CHKP is one of the leading companies in this category. Email security is one of the largest markets with approximately one billion users while remaining relatively untapped. However, it is also one of the greatest points of vulnerability.
CHKP is attractive from a growth and value perspective. Next year, the company is expected to increase its profits by 31%, which is quite impressive in a market where growth opportunities are scarce. Moreover, the stock is quite cheap with a forward P/E of 16.3 which is close to the market average despite higher growth and very attractive profit margins of 35.1%.
CHKP has an overall rating of B according to POWR ratings. The stock also has an A rating for quality, which is consistent with the majority of Wall Street analysts giving the stock a buy rating.
Given the massive sell-off in technology and cybersecurity stocks, CHKP’s status as one of the highest quality cybersecurity companies makes it a good fit for the portfolio as it can continue to grow in a challenging environment. It also has no financial risk given its low debt and significant liquidity. Click on here to learn more about CHKP’s POWR ratings.
FTNT is a provider of cybersecurity and networking solutions and services. Its customers include enterprises, communication service providers, government organizations and small businesses.
It is one of the leading firewall and VPN service providers. Its flagship product is FortiOS, which is a network operating system for managing network security appliances. Its cloud security offerings are available for deployment in public and private cloud environments and include application security.
Like QLYS, FTNT has outperformed the broader tech sector and industry. While most tech stocks mired in a brutal bear market, FTNT consolidated in a tight range, indicating that institutions are using unfavorable market conditions to accumulate stocks.
Next year, FTNT’s earnings per share are expected to rise from $0.81 per share to $1.31 per share, representing a nearly 60% increase in earnings. Given these strong fundamentals and trajectory, it’s no surprise that FTNT is rated B by POWR ratings, which translates into a buy. B-rated stocks posted an average annual return of 21.1%, which compares favorably with the 8.0% average annual growth of the S&P 500. Click here to learn more about FTNT’s POWR ratings.
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CHKP stock closed at $127.83 on Friday, up $0.54 (+0.42%). Year-to-date, CHKP has gained 9.67%, versus a -17.15% rise in the benchmark S&P 500 over the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and journalist for nearly a decade. Its aim is to help readers identify risks and opportunities in the markets. He is chief growth strategist for StockNews.com and editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s journey, as well as links to his most recent articles.
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