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Want to invest in cybersecurity stocks? Here’s what I’d do

In today’s digital world, cybercrime is one of the biggest threats we face. Described as the “number one problem with mankind” by Warren Buffett, it’s a huge problem for governments, businesses, and individuals alike. The statistics are nothing short of alarming. According to Cybersecurity Ventures, cybercrime will cost the world $6trn by 2021 – more than the global trade of all illegal drugs combined. For investors in cybersecurity stocks, there could be a big opportunity here.

With cybercrime only likely to increase in the years ahead, cybersecurity companies are well positioned for growth. With that in mind, here’s a look at how UK investors can invest in cybersecurity stocks.

Investing in cybersecurity stocks

When it comes to cybersecurity stocks, the UK stock market isn’t loaded with opportunities. Most of the world’s major players, such as Palo Alto Networks, Fortinet, and Check Point Software Technologies, are listed in the US.

However, there are some companies listed in the UK that operate in this high-growth industry I’ve outlined below.

UK cybersecurity stocks

In terms of pure-play cybersecurity stocks, the London Stock Exchange has:

  • Avast (market-cap £5.2bn): one of the world’s largest cybersecurity companies with over 435m users.

  • NCC Group (market-cap £450m): a cybersecurity specialist that assesses, develops and manages cyber threats for its clients.

  • Kape Technologies (market-cap £305m): which describes itself as the first truly global privacy and security company, owned by the public.

In addition, there’s GB Group (market-cap £1.4bn), an identity management company that offers solutions to help organisations validate and verify the identity and location of their customers. It operates in a related field.

Companies with cybersecurity exposure

There are also a number of UK companies that offer cybersecurity services as part of a broader offer. These include:

  • BAE Systems: which generates around 10% of its revenues from cyber and intelligence services.

  • Softcat: a technology specialist that helps public and private companies with IT services including cybersecurity.

  • Computacenter: a provider of IT infrastructure that also helps public and private companies with IT services including cybersecurity. 

Cybersecurity ETFs

I’ll point out that investing in cybersecurity stocks can be a bit tricky. This is because cyber threats are continually evolving. So, it’s hard for companies that operate in the cybersecurity industry to construct sustainable competitive advantages. This means there can be a high level of stock-specific risk compared to other industries.

This is where exchange-traded funds (ETFs) can be helpful. Through one ETF, you can potentially get exposure to many different cybersecurity stocks, reducing your stock-specific risk.

There are a number of related ETFs available to UK investors today but the main one is the Legal & General UCITS Cyber Security ETF.

It provides broad exposure to cybersecurity stocks listed all over the world. This ETF, which has performed well in recent years (three-year return of about 70%), has exposure to most of the big cybersecurity players including CrowdStrike, Fortinet, and Avast.

If I was looking to invest in cybersecurity stocks today, I’d go with this ETF to get broad exposure to the industry.

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Edward Sheldon owns shares in BAE Systems, GB Group, and Softcat. The Motley Fool UK owns shares of NCC. The Motley Fool UK has recommended Softcat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.