A new pit of money: America declares an exciting new ‘war’

By John Stepek

published 25 July 2013

13-07-25-gen-alexander — General Alexander: the man behind it all

Forget the war on terror'.

The war on drugs'? That's so 1990s.

There's a new money pit in town. The war on hackers'.

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According to US financial paper Barron's, terrorism has lost its slot as the top security threat faced by the US. Now cyber-attacks are the big bogeyman.

The military-industrial complex needs a good story to justify its never-ending expansion. This one's a cracker.

More to the point, a good story often delivers fantastic investment opportunities too. Here's how to hitch a ride on this one

Cybersecurity hype or not, it's still going to be very profitable

You might wonder how the internet can pose quite such a huge threat. And it's hard to get to the bottom of a lot of these cybersecurity claims. There are a lot of people with a lot of money and power at stake who have a vested interest in playing the whole thing up.

Defence departments are trying to avoid government budget cuts they need a new war to get behind. And most of the data on cyber-attacks seems to come from internet security consultants, who are hardly neutral parties.

However, even if the wilder claims are over-hyped, there's clearly a problem to be addressed here. Put aside worries about the military-industrial complex, and our governments' desire to capture our every movement, for just a moment. Cybersecurity is a serious commercial issue.

The internet has made life a lot more convenient in lots of ways. But if customers get scared that their credit card and bank details are at risk of being pinched by the Russian mafia, then that's bad for business. Being able to boast of good security could even become a competitive advantage in the longer run.

Regulators are also pushing companies to share more data on security breaches, notes Jonathan Guthrie in the FT. And now the UK's security agencies MI5 and GCHQ have written to the chairmen of FTSE 350 companies urging them to participate in a "cyber governance health check." The chairmen are meant to complete this questionnaire themselves, notes the FT.

Chances are this will just alert an awful lot of chairmen to how little they understand about computers, let alone their own company's cyber governance'. So whether they like it or not, companies are going to end up having to spend more money on internet security.

And the more of our data that ends up online, the more security we'll need. As Barron's notes, this "translates into big money for technology firms, consultants, and defence contractors working against cyber-attacks."

Some of the best ways to invest in cybersecurity

A number of hot' stocks in the sector have grown very popular with investors. One is Palo Alto Networks (NYSE: PANW). It trades on a ridiculous price/earnings ratio of more than 200. However, if you're in the market for a punt, the stock is trading near its 52-week low, and with takeover fever hitting the sector, it might see a rally based on pure performance chasing.

For a more long-term bet, Reshma Kapadia in Barron's likes the look of Fortinet (NYSE: FTNT), and Tara Clarke in the US edition of Money Morning agrees. The company is a pure play on cybersecurity which has taken a knock recently, due to some disappointing results. However, the company offers a relatively cheap and simple cybersecurity solution' which should appeal to "companies looking to do more with less."

Cybersecurity is also intimately connected with big data' the attempts by companies to make use of the huge quantities of information they have collected on us. My colleague Matthew Partridge wrote about big data' for MoneyWeek magazine recently. If you're not already a subscriber, subscribe to MoneyWeek magazine.

By the way, if you want to know more about the background to the war on hackers', have a read at this excellent Wired profile of the man behind it all, general Keith Alexander, director of the National Security Agency.

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John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.