Since the beginning of 1950, the S&P 500 (SNPINDEX:^GSPC) has undergone 38 separate crashes or corrections where the index declined by more than 10%. A double-digit percentage drop, on average, occurs every 1.87 years. We are now more than 16 months away from the coronavirus crash bear-market bottom recorded on March 23, 2020, and have not yet witnessed anything close to an official correction.
Every single crash or correction throughout history has been a buying opportunity for long-term investors. All 38 of the S&P 500’s declines of 10% or more have been erased by bull-market rallies to date.
If the stock market were to crash 10% or more at some point in the next months, cybersecurity stocks may be perfect for long-term investors to buy for the following reasons.
CyberSecurity at a Glance
Global spending on information technology declined in 2020 due to the COVID-19 pandemic, but cybersecurity spending bucked the trend. Organizations faced new security challenges as cloud computing and remote work became essential. Prices of many cybersecurity stocks soared, and demand for next-gen security software is stronger than ever.
Security breaches at the networking software company SolarWinds (NYSE:SWI) and at Colonial Pipeline illustrate the massive need for sophisticated security services and the massive consequences if an organization is not up to date with its IT security practices.
Global spending on cybersecurity is expected to exceed $120 billion in 2021 and will most likely continue to be a high-growth industry. Cybersecurity stocks are a sector of the tech industry that should see rising income, no matter how the economy fares in the years ahead. Knowing how to best invest in the sector may yield big returns in the decade ahead.
No matter how well or poorly the U.S. economy and stock market are performing, hackers and robots attempting to steal enterprise and consumer data don’t take a day off. That makes cybersecurity solutions a basic-need service and provides the basis for an industry giant like CrowdStrike Holdings (NASDAQ:CRWD) to grow swiftly.
CrowdStrike’s claim to fame is centered around its cloud-native Falcon security platform. Reliant on artificial intelligence, Falcon is designed to grow more efficient at recognizing and responding to threats over time, compared to on-premises security solutions. Falcon is currently overseeing more than 6 trillion events each week.
CrowdStrike’s customer retention rate has consistently been 98%, and the number of subscription customers has climbed from less than 450 in the fiscal year first quarter of 2017 to 11,420 five years later.
64% of CrowdStrike’s customers have purchased four or more cloud-module subscriptions. These add-on sales have lifted the subscription gross margin to about 80%. CrowdStrike is currently the largest pure-play security vendor by market capitalization. In an increasingly mobile world with ever more devices and IP addresses continually coming online, CrowdStrike is poised to continue growing at a very rapid pace.
SentinelOne (NYSE:S) is a pure-play cybersecurity company that went public in summer 2021. The company’s IPO in June 2021 raised $1.2 billion in cash and valued the company at $10 billion, making SentinelOne’s IPO the largest ever for a cybersecurity company.
SentinelOne operates a cloud-based endpoint security platform to automatically detect and resolve cybersecurity threats.
SentinelOne is growing rapidly and more than doubled sales in 2020 during the pandemic.
Top cybersecurity ETFs
If you prefer not to choose among individual cybersecurity stocks, you can consider several ETFs to participate in the growth of the cybersecurity industry as a whole. Top picks for cybersecurity ETFs include:
1. First Trust NASDAQ CEA Cybersecurity ETF
With more than $4.0 billion in assets under management, First Trust NASDAQ CEA Cybersecurity ETF (NASDAQ:CIBR) is currently the largest of its kind. The ETF is composed of 40 stocks in the cybersecurity industry and has an annual expense ratio of 0.6%.
2. ETFMG Prime Cyber Security ETF
ETFMG Prime Cyber Security ETF (NYSEMKT:HACK) is currently holding 61 stocks and primarily invests in smaller companies in the cybersecurity industry. The fund manages $2.3 billion of assets and has an expense ratio of 0.6%.
3. Global X Cybersecurity ETF
The Global X Cybersecurity ETF (NASDAQ:BUG) launched at the end of 2019. The fund currently manages a bit over $550 million of assets and has an expense ratio of 0.5%. The Global X Cybersecurity ETF is a bit concentrated, with only 32 stocks in its portfolio. Since its inception, the fund has outperformed the two other ETFs on the list.
Cloud-native cybersecurity companies have a natural competitive advantage, while legacy companies usually have stronger financial positions.
Companies that monitor cloud-based operations and those that manage web content and apps will become increasingly important to the online security of a company. Companies such as Cloudflare (NYSE:NET) and Fastly (NYSE:FSLY) are newer and faster-growing with a focus on edge computing and may be alternatives to invest in.