2 Digital Dominators Ready to Tackle Cybersecurity

The U.S. is under a digital attack.

The government is responding, and it’s a huge opportunity for investors.

On Friday the Biden administration announced it’s seeking to help fill 600,000 vacant public- and private-sector positions to secure the nation’s digital infrastructure.

Despite escalating digital attacks on fuel transport infrastructure, the electrical grid and State Department officials … lawmakers have been reluctant to ramp up cybersecurity.

The job-tracking database at the U.S. Department of Commerce reveals that almost 600,000 cyber job opening have gone unfilled, according to a report posted at Cyberseek, an industry advocacy group.

In August, President Biden met with executives from Amazon.com (Nasdaq: AMZN), International Business Machines (NYSE: IBM), Alphabet (Nasdaq: GOOGL), Microsoft (Nasdaq: MSFT) and Apple (Nasdaq: AAPL).

Cumulatively, the companies pledged $30 billion in funds and training for thousands of new cybersecurity professionals.

The outreach amounted to a détente for the White House because ...

  • Since 2020, President Biden has been battling with Big Tech at every opportunity. His administration has gone after the nation’s biggest tech companies for alleged antitrust violations and unfair practices.

However, the stakes are rising. Biden needs Big Tech’s help, and it looks like he’ll get it.  

The Colonial Pipeline, a 5,500 mile pipeline network supplying the eastern states with gasoline and other fuel products, was shut down in May when a successful ransomware attack roiled internal systems.

The pipeline network transports 100 million barrels per day. Gasoline futures spiked 3% and have been on a steady trajectory most of this year.

Two months later, the power grid was in focus when the U.S. Department of Energy said that bad actors currently have the ability to shut down the U.S. power grid.

Energy Secretary Jennifer Granholm said the private and public sectors must come together to thwart cyberattacks.

Related Post: Accenture Flourishes in the Digital Transformation Boom

And last week, Reuters reported that at least nine State Department officials had their iPhones hacked by predators deploying sophisticated spyware.

  • This all points to one thing: The time to step up against cyberattacks has come, and this is the inflection point.

Investors have a strong opportunity to think about playing it with a two-pronged attack, focused on (1) consultants and (2) systems builders.

1. Accenture (NYSE: ACN)

The first way to consider playing this opportunity is with Accenture, a professional services company and digital transformation winner.

Accenture’s consultants are dispersed globally and are embedded at many of the biggest global brands. These workers are building real software and they are intimate with the rigors of cybersecurity.

As attackers become more sophisticated and governments begin to act collectively, business will only grow at Accenture. Tax incentives and new programs will make it easier for big customers to bulk up their cyber defenses.

  • Accenture currently has 612,400 employees and $50 billion in revenues. Cybersecurity is currently a $4 billion business for the company annually.

More important, the business is a steady grower with solid margins. During the fourth quarter, sales jumped to $13.4 billion, up 24% year over year. The operating margin was 14.6%, according to a filing at the Securities and Exchange Commission (SEC).

 

Shares recently traded around $360.29.

2. Palantir (NYSE: PLTR)

Another savvy way for investors to consider playing this trend is with Palantir.

The company got its start building systems for the Central Intelligence Agency (CIA). In fact, the clandestine organization was one of Palantir’s original investors. Since that time, executives moved the business to work with other western governments and some corporate clients.

The focus at Palantir is data, databases and artificial intelligence (AI) systems. The Denver-based company runs custom algorithms against diverse sets of data collected from both private and public sources; then software presents the findings in an easily analyzed format.

  • The cutting-edge simplicity of using these systems is attracting a lot of public and private sector attention.

In July, executives said that third quarter revenues reached $392 million, up 36% year over year. Although the company is still unprofitable as division managers hire feverishly, gross profit margins have swollen to 82% and enterprise sales have now reached 46% of total sales. Free cash flow was $320 million through the first nine months of 2021.

Related Post: What to Make of Palantir

It’s important to note that politics are usually irrelevant to the stock market ... politicians make headlines, yet their real impact on corporations is negligible.

  • This is different: Cybersecurity has become a huge cost to the public and private sectors. There is real political will for change … and we’re already seeing it play out.

Investors may not think about Accenture and Palantir in terms of cybersecurity, yet these businesses look very well positioned to benefit handsomely in 2022 as securing digital infrastructure becomes the dominant theme.

Best wishes,

Jon D. Markman

About the Editor

Jon D. Markman is winner of the prestigious Gerald Loeb Award for outstanding financial journalism and the Society of Professional Journalists' Sigma Delta Chi award. He was also on Los Angeles Times staffs that won Pulitzer Prizes for coverage of the 1992 L.A. riots and the 1994 Northridge earthquake. He invented Microsoft’s StockScouter, the world’s first online app for analyzing and picking stocks.

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