Cybersecurity shares often outperform other tech stocks during economic downturns because companies won't lower their digital defenses just to save a few dollars. It might become harder to gain new customers as companies rein in their spending, but top players will usually bounce back quickly once the macro environment improves.
To capitalize on that trend, I previously highlighted some top cybersecurity stocks to buy in June and July. Today, I'll add three more stocks to that growing list for August: tech giant Microsoft(NASDAQ: MSFT), mature cybersecurity specialist Check Point Software Technologies (NASDAQ: CHKP), and niche growth stock Tenable(NASDAQ: TENB).
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1. Microsoft
Microsoft isn't usually considered a cybersecurity company since it generates most of its revenue from its cloud-based services, Windows operating system, and Xbox gaming business. But it acquired a long list of smaller cybersecurity companies over the past two decades, repeatedly upgraded its Defender antivirus software for Windows, and earmarked an additional $20 billion for cybersecurity investments in 2021.
Those investments, which Microsoft planned to spread out over the following five years, enabled it to acquire more cybersecurity companies and expand into the network security market with its Entra identity management, edge networking, and network access services earlier this year. It's integrating those tools into its Azure cloud platform.
That expansion -- along with Microsoft's big investments in ChatGPT's creator OpenAI -- suggests the tech giant could gradually merge its cloud, AI, and cybersecurity services to drive third-party cybersecurity services away from its sprawling ecosystem. Therefore, if you're looking for a balanced cloud play that also provides some exposure to the expanding cybersecurity market, Microsoft could be a great long-term investment.
Analysts expect Microsoft's revenue and adjusted EPS to rise 11% and 12%, respectively, this year, even as macro headwinds throttle software spending. Its stock isn't a screaming bargain at 30 times forward earnings, but its broad diversification, stable growth, and consistent profits could still make it a great safe haven play.
2. Check Point Software
Many of the market's top cybersecurity companies generate dazzling sales growth but trade at frothy valuations and struggle to produce consistent profits. For investors who aren't willing to take a risk on those higher-growth plays, Check Point Software might provide the perfect balance of steady growth, rising profits, and reasonable valuations.
Check Point is a pioneer in next-gen firewalls, which upgrade traditional firewalls with network-filtering services. It also developed ZoneAlarm, a firewall application for mainstream users. The company was founded three decades ago and serves more than 100,000 organizations across 88 countries, so it isn't a high-growth company anymore.
From 2022 to 2025, analysts expect its revenue to only expand at a compound annual growth rate (CAGR) of 4%. But it's also firmly profitable, and analysts expect its EPS to increase at a CAGR of 9% during the same period.
Those growth rates might seem tepid, but Check Point usually generates more than $1 billion in free cash flow (FCF) every year and bought back nearly a quarter of its shares over the past five years. With a forward price-to-earnings ratio of 17, Check Point is a sound choice for value-oriented investors who want some low-risk exposure to the cybersecurity market.
3. Tenable
Instead of trying to block external attacks as they happen, Tenable's Nessus platform scans an organization's entire software infrastructure for potential vulnerabilities like misconfigured software, weak passwords, and network flaws.
More than 40,000 customers worldwide -- including about 60% of the Fortune 500, 40% of the Global 2000, and several U.S. government agencies -- now use its services. It's locking in those customers with newer services like Tenable One, which bundle together a wide range of its services into a single platform.
Tenable is growing a lot faster than Microsoft and Check Point. Its revenue rose 24% in 2020, 23% in 2021, and 26% in 2022. Analysts expect its revenue to continue growing at a CAGR of 15% from 2022 to 2025 and top $1 billion by the final year.
That's a solid growth rate for a stock that trades at less than 7 times this year's sales. It's also faster than the projected growth rate of the global vulnerability management market -- which Research and Markets expects to grow at a CAGR of 7.5% from 2022 to 2030.
Tenable isn't profitable on a generally accepted accounting principles (GAAP) basis yet, but analysts expect its non-GAAP EPS to rise 76% this year and 24% in 2024. Therefore, investors who are looking for a growing niche player in the cybersecurity market should take a much closer look at Tenable and its proactive approach to stopping cyberattacks.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Check Point Software Technologies and Microsoft. The Motley Fool has a disclosure policy.
