With President Obama highlighting the national importance of cyber security, we turn to technology specialist Gregg Early to find the best opportunities in the sector.
Here, the editor of Personal Finance reviews a trio of stocks that are poised to benefit from growth in this area: McAfee (NYSE: MFE), Versar (AS: VSR) and Unisys (NYSE: UIS).
"In total, McAfee gets about 40% of its revenue from sales of such Internet security products to consumers. This business typically offers solid profit margins and growth potential.
"More interesting from a growth standpoint is McAfee's enterprise service and software businesses, which together account for the remaining 60% of revenue. For corporations, computer and network security isn't a luxury but a necessity.
"Industry experts estimate that 35 million data records were breached in 2007; that figure soared to 285 million last year. These threats can bring a company's entire information technology systems down and result in lost revenue and data.
"As a result, even as companies are cutting IT budgets to save money, they're maintaining spending on network security products and services. McAfee is one of the only firms to offer a comprehensive line of security solutions.
"The product line includes products designed to protect data storage facilities, reduce spam, and even monitor a company's network and users in real-time to identify internal and external security threats. McAfee also provides consulting and ongoing network security maintenance services.
"McAfee recently guided analysts' earnings estimates for the second quarter and full year 2009 higher. And it's trading at just 15 times forward earnings. The stock is a recent addition to to the growth section of our model portfolio.
"Versar is an integrated security solutions company that provides both physical and cyber security for public and private clients.
"One of its key clients is the Department of Homeland Security (DHS), which confers two advantages. First, DHS has extremely deep pockets and a broad mandate.
"Versar has plenty of headroom to win more DHS contracts. Second, the company has the capacity to strengthen its specialties and be a more attractive partner to federal government clients beyond DHS.
"Other security-focused agencies such as the Dept. of Energy, the Dept. of the Interior and the Dept. of Defense will look more favorably on a company doing such extensive work with another agency.
"Unisys has been around in one form or another for 133 years, so it's no newcomer to the tech space. Recently the company has emphasized the IT segment of its business, expanding its enterprise-level security operation.
"Unisys has carved out an international niche, earning a solid reputation in the process. Once a hardware-driven firm, Unisys has evolved into a provider of integrated IT solutions in recent years.
"Its enterprise server lineup, still the industry standard, is a solid platform for its growing role in providing broad expertise to large businesses and governments.
"These entities need secure and productive responses to the challenges of managing enormous amounts of data, and Unisys offers end-to-end answers."
