Cyber and Network Security Becoming the Top Technology Sector

In a new research report, the software analysts at Jefferies point out that while some tech companies struggled through the summer, network security software companies should do just fine when third-quarter earnings come out. In fact, they think there is a distinct possibility for their top stocks to beat estimates. Here are the top network security stocks from Jefferies.

Palo Alto Networks Inc. (NYSE: PANW) remains the leader of the group when it comes to market share gains. Despite ongoing patent infringement litigation with Juniper Networks Inc. (NASDAQ: JNPR), its customers are still confident in the company and its products. The company’s platform comprises Next-Generation Firewall that delivers application, user and content visibility and control. It delivers its platform in the form of a hardware or virtual appliance, and it includes a suite of subscription services, as well as support and maintenance services. The Thomson/First Call price target for the stock is $60. Palo Alto closed Monday at $45.50. A move to the target would represent a 30% gain for investors.

Check Point Software Technologies Ltd. (NASDAQ: CHKP) announced Tuesday it has been positioned in the Leaders Quadrant of Gartner’s recent Magic Quadrant for Mobile Data Protection. This is the seventh consecutive year that Check Point has been named a leader. Check Point offers a series of mobile data protection products that provides organizations with a full security solution that safeguards business information. The consensus price target for this top name is $62. Check Point closed Wednesday at $59.45.

Fortinet Inc. (NASDAQ: FTNT) announced this week a new high-performance, compact network firewall appliance for enterprise data centers, large service providers, cloud providers and carriers. Fortinet is the first network security company to deliver 100 Gbps+ firewall throughput and 40 GbE ports in a compact appliance. The consensus price target for the stock is posted at $24, and Fortinet closed Wednesday at $21.29.

Cisco Systems Inc. (NASDAQ: CSCO) recently acquired Sourcefire Inc. (NASDAQ: FIRE), as the networking giant looks to up its game in network security. With the close of this acquisition, Cisco will provide one of the industry’s most comprehensive advanced threat protection portfolios, as well as a broad set of enforcement and remediation options that are integrated, pervasive, continuous and open. The consensus price target for Cisco is $28, and the stock closed Monday at $23.34. Investors are paid a very solid 3% dividend. This may be the best way to play the sector.

Imperva Inc. (NYSE: IMPV) has moved into oversold territory and is another network security stock that may be a candidate for buyout. The company offers SecureSphere Data Security Suite, a solution designed to prioritize and mitigate risks to high-value business data, to protect against hackers and malicious insiders, and to address and streamline regulatory compliance. The company’s SecureSphere is an integrated, modular suite offering database security products designed to secure business data in structured repositories in the data center. The consensus price target is pegged at $52.50, and Imperva closed Wednesday at $42.37. A move to the target would be a 30% gain for shareholders.

One of the reasons Cisco Systems made the huge acquisition of Sourcefire is the company was starting to experience a severe decline in market share loss. In its report, Jefferies pointed out that International Business Machines Corp. (NYSE: IBM) also is experiencing dramatic share loss. It stands to reason that a mega cap tech company with huge pockets like IBM may be on the prowl to make an acquisition of its own.

With an explosion of data and the degree with which everybody relies on the Internet for business, cyber security is a top priority. The top stocks in the field are battling new entrants to maintain market share. The key for investors may be to spot the next acquisition target. It is a pretty good bet that any suitor will have to offer the company a large premium.