Hot Stocks In Cybersecurity Sector Easily Beat The Market As Ransomware Attacks Rise
Hot stocks in the cybersecurity sector are beating the market amid a big jump in ransomware attacks. But are they too extended to buy?
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Many are, as cybersecurity recently ranked sixth out of IBD's 197 industry groups. But investors can gain access to them via two exchange traded funds: First Trust Nasdaq Cybersecurity (CIBR) and Global X Cybersecurity (BUG).
The $4.9 billion First Trust Cybersecurity fund, which tracks the Nasdaq CTA Cybersecurity Index, marked its sixth anniversary in July. Stocks making the index must have a worldwide market cap of at least $250 million, a three-month average daily dollar trading volume of $1 million, and a 20% minimum free float of shares.
Software accounted for the biggest industry weight as of Wednesday, at more than 54% of assets. IT services weighed in at about 22%, communications equipment 13%, and professional services 9%. Aerospace and defense made up the remaining 2%.
The top 10 holdings, which represent about 45.5% of the 36-stock portfolio, include Palo Alto Networks (PANW), Accenture (ACN), Okta (OKTA), Cisco Systems (CSCO) and CrowdStrike (CRWD).
Hot Stocks Score Big Gains
Palo Alto gapped up and soared 19% on Aug. 24, after the company's fiscal Q4 earnings and sales beat views. It also raised its guidance for the current quarter. That propelled shares up 26% for the week and into the 20% profit-taking zone the week after. Palo Alto stock is up about 36% this year.
Accenture is bouncing off its 10-week moving average for the first time since a late-June breakout. That sets up a chance for investors to add shares. Before Thursday's open, the consulting giant reported fiscal Q4 earnings and revenue that edged past views, and offered earnings guidance above views. Accenture also hiked its quarterly dividend 10% to 97 cents a share and announced a $3 billion stock buyback. Shares are up more than 30% year to date.
Global X Cybersecurity (BUG), with $867.6 million in assets, tracks the Indxx Cybersecurity Index. It will turn two years old next month. Information technology, at nearly 84%, was the biggest sector weight as of Aug. 31. Communication services made up 14% and industrials 2%.
U.S. stocks accounted for about 74% of the 31-stock portfolio, Israel 14%, Britain 8%, and Japan 5%. Canada and South Korea made up less than 0.5% apiece.
IBD 50 Stock A Top Holding
Top 10 holdings include hot stocks such as ZScaler (ZS), Fortinet (FTNT), Palo Alto Networks, CrowdStrike and Okta. Through Wednesday's close, the top 10 stocks added up to just over 60% of assets.
ZScaler, an IBD 50 stock, is sharply extended from a 230.98 buy point of a cup base cleared in July. It's reached the 20% profit-taking goal, so investors could lock in some gains. ZScaler has returned 40% this year.
Fortinet is bouncing off its 10-week line but is well-extended after several prior pullbacks. Shares have more than doubled in price so far this year.
Both CIBR and BUG are staging rebounds off their 10-week lines, setting up a chance for investors to get in. The market is also back in a confirmed uptrend, a healthier overall environment. CIBR charges a 0.60% expense ratio; BUG costs 0.50%.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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