2 Cyber ​​Security Stocks You Can Buy and Hold for the Next Decade

The ongoing digital transformation of the global economy has created massive wealth for investors as a defining stock market theme. As technology plays an increasingly important role in our daily lives, the rise of digital threats targeting people and organizations has made cybersecurity more important than ever.

Companies that provide innovative solutions for securing online networks and sensitive information will benefit from significant growth opportunity in the near future.

Here are two cybersecurity stocks that could make a great addition to your portfolio.

1. Palo Alto Networks

Palo Alto Networks (NASDAQ: PANW) is recognized as a cybersecurity pioneer and the first pure play in the industry to reach a market capitalization of over $100 billion at the end of last year. This position as the world’s largest security player represents a major competitive advantage through brand recognition and market influence, highlighting a key part of the stock’s appeal as an investment opportunity.

Palo Alto has found success by introducing several disruptive innovations while building a comprehensive cybersecurity platform spanning network security, endpoint security, and cloud security. The stock has returned 394% over the past five years, riding a strong growth wave and accelerating profitability.

In its last reported fiscal quarter (for the period ended June 30), Palo Alto Networks reported a 12% year-over-year increase in revenue, while earnings per share (EPS) rose 5%. More impressive was the boost in annualized recurring revenue (ARR) from next-generation security products, which grew 43% year-over-year, suggesting a trajectory into 2025 and beyond.

The company believes its ARR for next-generation security, including zero-trust solutions, can triple in size by fiscal 2030. Management cites strong demand for recent subscription-based product launches that incorporate AI tools ( AI) as a strategic objective for the company.

In terms of valuation, the stock trades at 53 times next-year consensus EPS as a forward price-to-earnings (P/E) ratio. While that multiple may seem expensive, the premium is justified given the company’s leadership and positive outlook. Expectations for Palo Alto Networks to consolidate market share and generate strong earnings should keep the stock up over the long term.

2. Fortinet

Fortinet (NASDAQ:FTNT) is another cybersecurity leader that competes with Palo Alto Networks in several categories, but has key differences in its technology approach. In this case, the company stands out for its focus on combining specialized hardware products with its proprietary software to protect networks from threats such as unwanted access or intrusion by hackers.

The story continues

Even though cloud-based protection can be a viable and cost-effective solution with economies of scale for many applications, firewall devices with integrated security features still play a critical role in secure networks. Fortinet’s FortiGate firewall holds more than 50% of the global market share as the cornerstone of the company’s broader operating system.

Indeed, Fortinet is positioned to benefit from the growth of AI and related data center infrastructure. Through 2028, the company sees the secure networking market growing at an average annual rate of 15% as a driver for the business. Fortinet is also betting big on its own AI capabilities, incorporating machine learning and automation for optimized threat detection and security monitoring.

In the near-term, Fortinet is targeting full-year revenue growth of more than 10% from 2023, while its EPS target of around $2.02 represents 25% year-over-year growth. Even though the stock is up 31% over the past year and is currently trading near an all-time high, I think the rally can continue. Compared to Palo Alto Networks, Fortinet stock trades at a forward P/E of less than 33, which I think makes it the value pick of the two.

The big picture for investors

Secular tailwinds make cybersecurity one of the most exciting segments of the tech sector, with the potential to reward shareholders over the next decade. I think Palo Alto Networks and Fortinet both deserve a buy rating and are good options to capture the high-level themes driving the cybersecurity market.

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Dan Victor has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Fortinet and Palo Alto Networks. The Motley Fool has a disclosure policy.

2 Cybersecurity Stocks You Can Buy and Hold for the Next Decade was originally published by The Motley Fool