Cybersecurity is a hot topic right now. With cyberattacks playing a large role in the Russia-Ukraine conflict, experts are concerned that these attacks could spill out to the rest of the world.
I’ve been bullish on the cybersecurity sector for years now, and with cyberattacks currently a major threat worldwide, I think it’s a good time to revisit the theme. With that in mind, here’s a look at how I’d invest in UK cybersecurity stocks today.
UK cybersecurity stocks
If I was looking for a ‘pure-play’ UK cybersecurity stock, I’d start with Avast (LSE:AVST). It’s one of the world’s largest associated companies with over 400m users globally. It has a track record of consistent growth, a solid balance sheet, and a high level of profitability.
Last year, Avast received a takeover offer from rival giant NortonLifeLock (which indicates it’s doing something right). However, UK regulators recently put the deal on ice, due to concerns it could reduce competition in the sector. As a result, Avast’s share price has fallen.
I’d snap up AVST shares while they’re down. After the pullback, the stock’s price-to-earnings (P/E) ratio is under 20. That valuation is attractive, to my mind.
It’s worth pointing out that there are a number of other pure-play cybersecurity stocks on the London Stock Exchange including NCC Group, Kape Technologies, and Darktrace.
These businesses are not as profitable as Avast however. Darktrace is not profitable at all. So I’d be less inclined to buy them for my portfolio.
Cybersecurity exposure
Another way to play the cybersecurity theme is through IT infrastructure companies. These are companies that provide technology solutions for other businesses.
Some examples here are FTSE 250 firms Softcat and Computacenter. Both of these companies help public and private organisations with their IT services, including cybersecurity.
These stocks have a lot of appeal, to my mind. Both look set for solid growth in the years ahead as businesses undergo digital transformation. If I had to pick one today though, I’d probably go with Computacenter. It has a lower valuation than Softcat.
Defence companies can also provide some exposure to cybersecurity. BAE Systems, for example, is a leading provider of cyber, intelligence, and security capabilities. This is another stock I’d consider for my portfolio. However, it has had a good run recently, so I might wait for a pullback before buying.
A dynamic industry
It’s worth pointing out here that investing in cybersecurity can be a bit tricky. This is because cyber threats are continually evolving. Due to the dynamic nature of the industry, it can be hard for companies to build durable competitive advantages. As a result, individual stocks quite often underperform at times.
To get around this, I’d consider investing in a cybersecurity-focused exchange-traded fund (ETF) that provides exposure to many different stocks. One example of such an ETF is the Legal & General UCITS Cyber Security ETF. This would provide me with exposure to a wide range of cybersecurity stocks (including stocks listed internationally), and therefore reduce stock-specific risk.
