In 2014 the absolute hottest sub-sector of technology was cybersecurity, and with good reason. In what seemed like a weekly occurrence, everybody from the U.S. government to major big-box retailers to you name it were getting hacked and valuable information was being compromised. The surge in cyber-crime also put a huge bid under the top stocks in the arena, and some hot initial public offerings also lifted things.

The unfortunate thing for many investors, as is often the case, is they got in late, and when the stocks finally rolled over big time, starting last summer, the carnage was horrific. Like all Wall Street phenomena, what happened is that the street became very enthusiastic toward the companies that were growing revenue, but still losing money hand-over-fist. Then the short sellers circled, and that was all she wrote.

We recently screened the Merrill Lynch tech research database to see which companies they liked, and true to form they have stayed with three of the companies that are not only making money, but are also growing their business. All three are rated Buy at Merrill Lynch and have substantial upside potential.

Check Point Software

This remains one of the top tech stocks to buy on Wall Street for a security presence. Check Point Software Technologies Ltd. (NASDAQ: CHKP) is one of the best in helping customers protect against advanced persistent threats (APTs). It is considered a worldwide leader in securing the Internet, providing customers with uncompromised protection against all types of threats, reducing security complexity and lowering the total cost of ownership. Check Point first pioneered the industry with FireWall-1 and its patented stateful inspection technology.

The company’s revenue growth rate has accelerated almost every quarter over the past year and a half. Many on Wall Street think that Check Point should see year-over-year accelerating growth in product licenses, particularly as the security firewall refresh appears to be in the beginning stages.

The company reported outstanding fourth-quarter results on strong demand for its APT and mobile security technologies. Total revenue was $458 million, representing a 9% increase year over year. Non-GAAP operating income came in at $262 million, representing 57% of revenues. Non-GAAP earnings per share of $1.20 represented a 12% increase year over year, and deferred revenues of $906 million represented a 16% increase year over year.

“We completed 2015 with revenues in the upper half of our range and earnings that exceeded our projections. Subscription revenues grew 22 percent during the quarter, driven primarily by customer demand for advanced threat prevention technologies including SandBlast zero-day malware protection,” said Gil Shwed, founder and chief executive officer of Check Point. “We’re pleased to see that our investment in advanced threat prevention and mobile security are producing results.”

The Merrill Lynch price target for the stock is $94, and the Thomson/First Call consensus price target is set at $88.69. The stock closed most recently at $87.47 per share.
Fortinet

This company was rewarded with continued good earnings by getting absolutely hammered, and it is still down over 40% from highs posted last summer. Fortinet Inc. (NASDAQ: FTNT) is well liked on Wall Street, and the company’s fast, secure and global cybersecurity solutions provide broad, high-performance protection against dynamic security threats while simplifying the IT infrastructure.

Fortinet solutions are strengthened by the industry’s highest level of threat research, intelligence and analytics. Unlike pure-play network security providers, Fortinet can solve organizations’ most important security challenges, whether in networked, application or mobile environments, be it virtualized/cloud or physical.

The company also reported solid earnings in January, and in addition Fortinet gave Wall Street analysts very solid forward guidance. The firewall market remained strong especially in the service provider vertical market, where numbers were up 46% year over year. The solid guidance for the full 2016 fiscal year and a $200 million share buyback program add up to strong positives for investors.

Merrill Lynch has a $35 price target for the stock, while the consensus price objective is even higher at $39.22. Shares closed Thursday at $30.63, up over 4% on the day.

Palo Alto Networks

This company was a momentum trader’s dream between 2013 and 2015, and it may have more investors looking the company’s way again after the big sell off. Palo Alto Networks Inc. (NASDAQ: PANW) is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber-threats, and it boasted staggering year-over-year billing growth.

Unlike fragmented legacy products, the Palo Alto Networks security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content. The platform has new features that were introduced to help security professionals overcome the distractions and time spent on problems caused by the overwhelming volume of alerts and manual processes associated with operating many discrete security products, and, instead, expand breach prevention capabilities and boost operational efficiency.

The company continues to be ranked the highest with the Wildfire product, which has been the favorite in the APT space among the value added resellers who carry and sell the product. Toss in solid upside in billing potential for 2016 and 2017, and the story is a killer going forward. Many analysts on Wall Street have made it clear that the feedback they get from the professionals at security conferences is the most bullish on Palo Alto, and the company is gaining real traction with larger data centers’ firewalls.

Merrill Lynch has a $210 price target for the stock, and the consensus target is set at $193.32. The stock closed trading Thursday at $163.14 per share.

The exodus of fast-money traders is no doubt a big reason for the collapse in the stocks last year and early this year. But make no mistake, the need for the product is gigantic, and while the rerating of the companies may be ongoing, the continued big corporate and government hacking will refocus attention squarely back on all of them.

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