The software industry had an incredible run during the long bull market, but some of the top players were hammered recently. As recently as last month, some top stocks in the cloud, software as a service and customer relationship management areas were absolutely torched. While they remain outstanding stocks to invest in, the rich valuations attached cannot survive forever, especially if the market takes a big dive. It may make sense to start looking for companies in the sector that are not so valuation rich.
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Security software remains in demand, and with good reason. Even as technology has improved to keep away hackers and cybercriminals, the technology they use has improved as well. The constant battle to stay one step ahead persists.

Raymond James has renewed coverage on the top cybersecurity stocks, and favors three companies now, especially with third-quarter earnings reports on the way. The analysts noted this in the report:

We believe the Cybersecurity Software industry is in the midst of a “Golden Age” as the combination of durable growth drivers and low cost of capital have resulted in broad-based outperformance for equity holders, and we believe this trend should continue.

The three favorite companies all make sense for investors looking for technology ideas that may not be quite as crowded as the mega-cap momentum leaders.

Fortinet

This stock backed up nicely since the summer and offers a very attractive entry point. Fortinet Inc. (NASDAQ: FTNT) secures the largest enterprise, service provider and government organizations around the world. It empowers its customers with complete visibility and control across the expanding attack surface and the power to take on ever-increasing performance requirements today and into the future.

Fortinet’s Security Fabric platform can address the most critical security challenges and protect data across the entire digital infrastructure, whether in networked, application, multi-cloud or edge environments. Fortinet ranks number one in the most security appliances shipped worldwide, and more than 465,000 customers trust Fortinet to protect their businesses. Both a technology company and a learning organization, the Fortinet Network Security Expert Training Institute has one of the largest and broadest cybersecurity training programs in the industry.

The analysts said this:

We think penetration of compute-intensive functions like SD-WAN provides significant runway (currently 12% of billings), and the technology gap is significant, which should lead to sustained organic growth. Recent transactions in SD-WAN serve as a near-term catalyst given tech leader Silver Peak is in the process of being acquired by HP Enterprise.

The Raymond James Outperform rating on the shares comes with a $155 price objective. The Wall Street consensus target is $139.50, and Fortinet stock closed Monday at $119.09 a share.

This company is at the forefront of cybersecurity and has awesome growth potential. Ping Identity Holding Corp. (NYSE: PING) is a leader in identity access and management. Its products safeguard enterprise applications and data by providing controls around user authentication, access and more.
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Ping’s single-sign-on technology helps streamline user workflow by providing a single password for multiple applications to reduce log-ins. Additional product features include consumer identity management, Internet of Things and application programming interface management. Ping differentiates with a history of complex deployments across hybrid networks.

The analysts have a Strong Buy rating and said this:

We believe the combination of:
1) favorable secular market trends that are in the early innings, but poised to accelerate.
2) Ping’s differentiated technology in both enterprise scale and burgeoning customer identity use cases.
3) proven ability to operate a profitable growth model make this an attractive asset at a reasonable price relative to the group.

The $40 Raymond James price target compares to a $35.73 consensus target. The last Ping Identity stock trade on Monday was reported at $32.73, up almost 5% on the day.

Rapid7

Investors may not be familiar with this company, but its stock has solid upside potential to the analyst target. Rapid7 Inc. (NASDAQ: RPD) engages in the provision of cybersecurity analytics and automation services. Its product includes an insight platform that offers InsightVM, InsightIDR, InsightAppSec and InsightConnect.

Rapid7 is advancing security with visibility, analytics and automation delivered through its Insight cloud. Its solutions simplify the complex, allowing security teams to work more effectively with IT and development to reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks. Some 8,400 customers rely on Rapid7 technology, services and research to improve security outcomes and securely advance their organizations.

The report pointed this out:

We think Rapid7’s core vulnerability management market represents an important pillar to a holistic security strategy, based on our conversations with customers, and is essentially a three-horse race with Rapid7, Qualys, and Tenable owning more than half of the market. We think the industry structure can sustain over the intermediate term as moats widen alongside platform expansions. As VM continues to broaden its value proposition, we see growth in both share of wallet from existing customers, and opportunity to acquire new customers, supporting a growth rate in line with the overall security market in the high-single-digit range.

The Raymond James price target is set at $70, near the $69.80 consensus target. Rapid7 stock closed at $61.33 on Monday.

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While the whirlwind around the top stocks in the industry has slowed dramatically from the pace of five and six years ago, the need in corporate America is increasing every year. These top stocks offer investors solid ways to play the sector in a multitude of areas.

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