Cyber Stocks: Excellent 2020 Run Should Continue in 2021 High Profile Major Hacks - Oppenheimer

January 5, 2021 7:01 AM EST
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Oppenheimer analyst Shaul Eyal expects an "excellent" 2020 run in cyber and internet infrastructure stocks to continue in 2021 on the back of cyber attacks and COVID-19 sector tailwinds.

The sector should also see an increase in demand after major cybersecurity breaches in FireEye (NASDAQ: FEYE), SolarWinds (NYSE: SWI), and Microsoft (NASDAQ: MSFT) that took place in December.

“In 2020, our Infrastructure Software coverage group delivered a total return of ~68%; for the year, the NASDAQ composite expanded by 44%, the S&P 500 grew by 16%, and the Dow Industrials finished up 7%. For 2021, Gartner forecasts Enterprise Software revenue growth of 7.3%, and we expect revenue for the leading names of our coverage sub-sector to match or exceed this pace of acceleration,” Eyal wrote in today’s note sent to clients.

The sector-wide dynamics are favorable, according to Eyal. The accelerated rate of digital transformation on the back of the pandemic, as well as stronger cyber-threat activity and WFA trends, should provide a solid base for the sector to continue its growth next year.

“Areas to monitor in 2021 include: 1) Cloud & Digital Transformation; 2) Zero Trust technologies; 3) Artificial Intelligence and Machine Learning; and 4) Automation. The pandemic has changed work, education, and entertainment, migration to the Cloud. Firms that effectively leverage cutting-edge technologies should be better positioned to thrive in 2021.

“For 2021, names with leading technology platforms have a defensive moat to weather varied market conditions. Since COVID-19 isn't in the rearview mirror yet, we still prefer firms that have demonstrated the ability to accelerate top-line growth in a pandemic/remote work environment. In addition, names with business stability and solid balance sheets with sufficient cash on hand should do well during 2021,” the analyst added.

Overall, Eyal expects quarterly results to come higher-than-expected amid strong seasonal year-end flows.

“Our favorite names maintain technological IP advantages, and we expect them to deliver solid growth in 2021. These names include: CHKP, CRWD, CYBR, DOX, FEYE, FTNT, MIME, NET, NICE, NUAN, OKTA, PANW, PING, RDWR, SAIL, SPLK, TUFN, VRNS, and VRNT,” he concludes.

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