This Cybersecurity Stock Could Be Turning the Corner

I’ve said before that we are in the middle of a new technological Cold War.

On one side sits the U.S. and its allies.

On the other is China and the countries it’s managed to bribe, buy, or cajole into doing its bidding.

Countries like Russia and Iran are part of the Cold War as well, but both nations are acting out of convenience.

We’ve seen no shots fired yet. But tensions are heating up.

Both sides have fought this battle on the digital front.

And this has put cybersecurity on the front lines of defense.

Russia and China sponsor more and more cyberattacks every year.

We’ve covered it extensively.

You may remember hacks like that of the Colonial Pipeline system back in May. Those hackers stole 100 gigabytes of data and shut off fuel supplies to the East Coast.

They also demanded a ransom of $4.4 million in bitcoin.

Colonial Pipeline paid, but the FBI was able to recover most of it.

There are allegations that these hackers were backed by Russia’s military intelligence service.

Last year, Russian hackers also gained access to the departments of Homeland Security, Defense, and several others.

They also hacked the British government and NATO’s headquarters.

These combined attacks are known collectively as the “SolarWinds hack.”

The Chinese are no slackers here either.

Chinese hackers breached Microsoft’s email servers in January. That’s just one month after the SolarWinds attack was made public.

This gave the Chinese hackers access to emails from at least 30,000 Microsoft customers. That number includes users from both government agencies and private companies.

To be clear, China’s hacks did not only include reading emails.

Instead, we’re talking about accessing classified information and even editing or writing files.

Both the SolarWinds and Microsoft attacks are also still ongoing.

Government agencies can’t even start the clean-up phase yet because the hackers are still in the system. This is part of an even more alarming threat to the average American citizen.

You and me — we’re targets as well.

According to Matthew Pottinger, a former deputy national security advisor, China has collected enough data to create a complete dossier on nearly every American.

Seriously.

He told this to Congress during a hearing before the Senate Intelligence Committee last Wednesday.

And there’s also the flood of ransomware attacks on hospitals. Those have cost the U.S. healthcare industry about $20.8 billion last year alone.

Not to mention the harm caused to patients who couldn’t be treated.

This Isn’t Slowing Down

Neither China nor Russia are going to stop anytime soon.

Their logic is simple.

Hacking American citizens, businesses, or agencies can produce huge rewards.

Hacking grants access to secrets and the potential to discover dirt on people they can potentially blackmail later.

Add on the money made from ransom, and it’s no wonder they pursue this practice.

As for the cost, well, it’s minimal. Especially when you compare it to starting a shooting war, which would be extremely destructive for all parties.

The digital war is likely to remain a constant source of aggression.

So the demand for digital defense against these attacks will only keep growing.

That’s why I’m keeping a close eye on one company this week.

ILOVEYOU?

McAfee Corp. (MCFE) reported its latest quarterly earnings yesterday.

And while I will spend a lot of time digging into the numbers, I want to talk to you about why I’m so intrigued by this stock for the long term.

McAfee has a storied history in the cybersecurity world.

In 2000, it was the leading company in defending against and cleaning up after the ILOVEYOU hack.

That simple email-based hack is considered one of the worst ever.

The attack hit 10% of the world’s computers and forced the Pentagon and the CIA to close down their email systems.

Though it was simple, the hack caused between $5.5 billion to $8.7 billion in damages.

On top of the $10 billion to $15 billion cost of cleaning up afterward.

McAfee spent nine years as part of Intel Corp.’s (INTC) security division.

It only went independent again in October 2020 in an IPO overshadowed by its founder John McAfee’s global legal problems (he is now deceased).

McAfee has struggled to break into the enterprise cybersecurity market, which is why Wall Street analysts expect an almost 40% drop in earnings compared to last year.

But I’ll be looking more at what McAfee says about its consumer division.

See, McAfee is one of the few cybersecurity companies with a consumer business as big as its enterprise one.

McAfee’s consumer revenues have been growing by double digits for years now.

Of course, COVID-19 has sent millions of people to work remotely from home. Many of them want to stay there. Combine that with hack after hack hitting the headlines, and consumers will keep wanting more cybersecurity.

McAfee is working hard on this trend.

For example, McAfee has special cybersecurity tools for remote students. I’ll be curious to see how that offering has affected the company’s bottom line during the pandemic.

Of course, nowadays, we often access the internet through our smartphones and tablets. So McAfee also offers cybersecurity products for both iOS and Android devices.

But its business side continues to make good cybersecurity products. These include IntruShield, which scans networks for any abnormal activity that might be the sign of an intruder.

As hacks like SolarWinds have shown, well-funded hackers will find a way into even the most up-to-date system. So having early warning systems in place is crucial.

If the company’s earnings show that it might be turning the corner in that market, too, this could be a company to watch. The stock had an IPO at $22 last year and recently broke the $30 level, a sign of improved momentum.

That said, TradeSmith Finance is still collecting data on the company, and we’ll be looking for a solid trend and signal soon. We will add McAfee to our watch list and step in and purchase it should TradeSmith Finance like what it sees soon.