With technology playing an ever-increasing role in the way we live our lives, protecting that bond is becoming even more important. Recent cyber attacks on the IMF and EMC's (NYSE:EMC) RSA security unit highlight the potential dangers of our reliance on networks. As our data moves to the cloud and our electric grid becomes smart, securing all the networks of the world will be a major task. Analysts estimate that billions must be spent, as the sophistication of the threats keeps evolving. For investors, companies involved in protecting that critical data could be one of the best long-term tech plays.

TUTORIAL: Five Minute Investing

Growing Number of Data Breaches
The modern world's reliance on computer networks grows more interconnected every day. From smartphone adoption and email to digital banking and credit cards, it seems that we use the web for more things than ever before. Perhaps, even more important, is the dependency of the Pentagon, municipalities, global exchanges and electrical grids on computer networks. This reliance underscores a disturbing trend: An exponential increase in data breaches. Industry experts estimate that in 2007 there were nearly 35 million data records breached. As of 2010, data breaches have soared to 285 million. The Department of Defense has reported that there are over 100 foreign intelligence organizations trying to break into U.S. networks. Google's (NASDAQ:GOOG) recent run-ins with Chinese hackers are just one example of the growing concern. These attacks can wreak much havoc. In 2000, a disgruntled employee created a computerized worm at a water-treatment plant in Australia. This virus released more than 200,000 gallons of sewage into parks, rivers and the grounds of a Hyatt hotel.

This trend of increased cyber attacks is also having an effect on IT spending. According to the White House, the budget for IT security spending in fiscal 2009 was around $7.3 billion. This was a 9.8% increase over fiscal year 2008. Utility companies around the world will spend $21 billion by 2015 to improve cyber security for the world's electrical smart grid. Overall, analysts estimate that spending on cyber security will grow 8.1% annually through 2015. Despite the calls for paring down defense spending in Washington, cyber security will remain one of the few growth areas in the defense budget for the near term. Spending by public corporations is also set to grow as cloud computing, mobile commerce and remote access become larger.

A Protection Portfolio
With the cyber threats continuing to mount and the reliance on computer networks growing, adding an IT security component to a portfolio makes sense. PowerShares Aerospace & Defense (NYSE:PPA) follows some of the largest defense contractors and could be used as proxy for the sector. However, as General Dynamics' (NYSE:GD) recent decision to lay off 5% of its 10,000 secure information systems workforce shows, not all defense contractors are taking the sector as serious. In addition, there are plenty of tech companies poised to take up the fight. Here are a few picks.

Fortinet (NASDAQ:FTNT) provides a system of unified threat management and all-around protection. By using Fortinet's products, customers save money and get an all-in-one protection, rather than piecemealing several systems. The company has recently partnered with Indian tech firm Sify (NASDAQ:SIFY) to roll out an on-demand security solution to their cloud computing customers and its Clean Connect service. Similarly, both Sourcefire (NASDAQ:FIRE) and Websense (NASDAQ:WBSN) provide cloud computing security options.

NASA has recently partnered with SAIC (NYSE:SAI) to upgrade the space agency's information systems. The contract was valued at $1.3 billion. A key component of the project will include upgrading IT security for those systems. The company just reported a 12% increase in first-quarter operating income versus the same quarter in 2010. Most of the gain has been due to new cyber security contracts.

Already a major player in the areas of building automation and energy efficiency, Honeywell International (NYSE:HON) has been moving into the sectors of smart grid security. This past October, it won a $2.2 million grant to research and develop systems architecture that limits operator's access to the appropriate levels for job function. Honeywell is a prime spot to present integration of its cyber security products with its grid offers.

Bottom Line
As technology and the modern world continue to rely on computer networks to function, protecting those networks will be paramount issue. Cyber security stocks such as Symantec (NASDAQ:SYMC) will continue to see their bottom lines grow, as threats and spending continue to rise. For investors, investing in these companies can do a lot more than just protect their data. (For related reading, also take a look at Tips For Keeping Your Financial Data Safe Online.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  3. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  4. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  5. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  10. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!