If you’re like most of my readers, you’ve probably seen this very high-voltage teaser a few times in recent days — it’s all about cybersecurity, but the Oxford Club folks aren’t content to just tell you that online security and hacker-fighting is a large and growing business, they apparently also want to scare your pants off. Or scare your wallet open, at least.
Here’s how the ad opens:
“Starting as soon as tomorrow, a group of world-class “cyber-terrorists” will attempt to steal $105 billion from global bank accounts….
“By tomorrow morning, it might be too late…
“When you wake up, everything might seem routine.
“You eat a quick breakfast. You turn on the news. Then you pull out your laptop to check your bank balances.
“As you look at your computer screen, it takes you a minute to realize what’s happened…
“Your entire life savings have been wiped out.”
With an opening like that, I can see how this ad must get quite a few readers — especially among the core demographic for investment newsletters, folks in their 60s and 70s who are likely to have a (probably wise) high level of mistrust for electronic banking anyway.
So you keep reading, of course, because the ad tells you that “Your money might be gone forever.” And who wouldn’t want to be prepared for that?
The letter comes in from Matthew Carr, who says he’s the “resident cyber security expert” for the Oxford Club, and he tells you not only that he has some “secrets” that will make your bank account safer — other than the standard advice of using complex passwords and updating your computer’s security and keeping accounts under FDIC limits, I have absolutely no idea what he’s talking about with that, or if that advice would have any value for you.
But the next part is where your friendly neighborhood Stock Gumshoe gets more interested — he tells us not only that there’s a way to protect yourself, but, antennae up, there’s also a way to get rich.
See, the fear synapses are probably quite well developed here at Gumshoe HQ — but the greed synapses are off-the-charts sensitive. Scare us if you want, but while you’re at it you’d better throw off a few hints about how we can become fabulously wealthy.
And the Oxford Clubbers, as you might expect, are happy to oblige. Fear makes you look over your shoulder, greed makes you pull out your wallet.
Here’s how Carr puts it:
“Right now, there are several small breakthrough tech companies that are being paid billions of dollars to stop these cyber terrorists in their tracks.
“Over the coming months, these small-tech companies stand to go up substantially in value – becoming household names practically overnight.
“Over the next few moments, I’ll give you all the details on these companies.”
So after sitting through the first 13 pages of this “presentation”, we finally get to our clues … page 14 starts us on the parade of hints about these “breakthrough tech companies” that are going to be our cyber-security salvation.
So, any further ado? No? Without it, then … the clues:
“It’s a small company.
The market cap is just $722 million.
But it’s about to make a big move on Wall Street…
“Because they’ve developed a new technology capable of stopping these cyber terrorists in their tracks and keeping them permanently locked out of America’s electronic networks.
“Their new ‘cyber fortress’ software is unlike anything the tech world has ever seen when it comes to protecting web-based transactions from sophisticated cyber attacks.
“It’s said to be as powerful as having 100,000 IT professionals working simultaneously around the clock to protect an enterprise’s network against new threats.”
Sounds good, right? Some more details:
“every single branch of the U.S. military depends on their software to secure the most highly classified computer networks.
“In addition, nearly every Fortune 100 company across the globe is now using their products.
“Market research firm, SmartTrend, reports this company’s cyber-security products outperform ALL others in the systems software industry.”
As far as I know, SmarTrend is a short-term stock picking service, not a market research firm — and this is (or has been, at least) a growth stock darling, so SmarTrend has probably called them an “outperformer.” Unless there’s a different SmarTrend around that I don’t know about, though, that’s the stock outperforming, not the company’s products.
And then we get one last bit of tidbittery for our chewing pleasure:
“The company is in the midst of adding nearly four million new clients to its already booming customer base – setting the stage for a historic run-up in the company’s share price.
“In addition, the company has 38 brand-new patents for security software that will revolutionize the industry.”
From those clues, the mighty mighty Thinkolator tells us that they must be teasing … SourceFire (FIRE).
The market cap is just about right, a little over $700 million. Their product is used by lots of government agencies, including all the miltary branches, and many huge companies, as teased (most of the Fortune 100). And as of the last report I saw, they did have 38 patents pending (they have nine awarded). I don’t know where the four million new clients bit comes from, but from reports I’ve seen they are close to four million cumulative downloads of their open source software, so perhaps that’s it.
SourceFire is built on the back of an open source network security program called Snort, and they make money by selling add-ons and service and upgrades to Snort, as well as by selling more exhaustive security services for the network. They have also recently developed a new open source product called Razorback which they describe as a “traffic cop.” I’ve heard of FIRE many times, and it has been a pretty high profile stock on several occasions (Louis Navellier teased them almost a year ago as a stock that would double from $25 to $50 — hasn’t gotten there yet, and it’s back to right near $27 again after seeing both $20 and $30 in the past year).
Still, after hearing quite a bit about FIRE as an investment, I can’t say that I really understand their product — from what I can tell their Snort platform is genuinely huge, though the monetization of it seems to go in fits and starts if the ability of analysts to estimate earnings is any indication. Forecasts for this year’s earnings have been reduced lately, to the extent that analysts think they’ll earn less in 2011 than they did in the last four quarters — not so good when you’re already paying 30+ times earnings for the past, those downgraded estimates mean FIRE has what amounts to a scarlet letter for a supposed growth tech company: a forward PE that’s substantially higher than their trailing PE.
The company has turned to acquisition to try to bolster its portfolio of products, they just bought a startup cloud security company called Immunet for something like $20 million. No idea how that’s going to work out yet, Immunet does seem to have customers but they weren’t profitable yet. From what little I understand, FIRE has really come to do extremely well in a narrow slice of network security through Snort and their add-ons to that public source software, but it’s not terribly clear to investors how that’s going to turn into dramatic growth going forward. The stock seems to move quite a bit on earnings and management commentary, the next time you’re likely to see that is in about three weeks, they report after the market close on February 23.
How about the second security stock the Oxford Clubbies tease?
Here are your clues:
“But there’s another cyber-security market that needs instant attention and will make a few companies very rich…
“The smart phone market.
“And in this area, one company stands above the rest.
“It’s a specialized company that’s developed a Global Intelligence Network with more than 240,000 sensors in over 200 countries.
“As part of this global network, this company gathers malicious code data from 133 million systems and scans more than eight billion e-mail messages a day.
“And now, the top cell phone firms are scrambling to get their software.
“Just recently, they finalized a deal with a top smart phone company to provide cyber security for 200,000 new smart phones per day.
“In addition, talks are now underway for this company to provide cyber security for the iPhone – a deal that could add $25 billion to their bottom line.”
And there’s a bit more, with some juicy little clues and lofty expectations:
“… the CEO recently bought $550,000 worth of company stock…
“revenues have already jumped from under $1 billion to over $6 billion.
“We see an even bigger jump coming in the days ahead as the cell phone companies across the globe turn to their Global Intelligence Network to combat the coming cyber attack.
“In fact, our research indicates this company will double in value starting in the next few days.”
So … hoodat? Thinkolator sez this is:
No surprises here, Symantec is one of the few dominant computer security companies, up there with Check Point Software (CHKP) and McAfee (MFE — in the process of being bought by Intel) in the large cap area of this sector. And in fact, Symantec is the largest in the group with a market cap of about $13 billion.
They do have that “Global Intelligence Network” of 240,000 sensors in over 200 countries — that’s one of the ways they acquire information about threats, viruses and the like. And yes, the 133 million client systems and the eight billion email messages clues are also straight from the company’s own PR material.
One of Symantec’s brands that you might know is Norton, a longstanding security suite provider, and they do indeed have a smart phone product that targets the iPhone, iPad and Android devices. Don’t have any idea if it’s being widely adopted, but Symantec is certainly a dominant player in cybersecurity, with a far more stable business than SourceFire even if no one has quite gotten uber-excited about SYMC’s growth in recent years.
The stock has traded between roughly $15 and $20 most of the time over the last five years, with a few quick forays out of that range, and it’s right in the middle now at about $18. Trades at 11X next year’s earnings, and at about twice last year’s sales of around $6 billion, so if (and this may be a big “if”) the Oxfordians are at all right about a huge potential market for iPhone security (they tease it at $25 billion, no idea on time frame) then that would likely be enough to move the needle — but still, expecting SYMC to double in a matter of days seems a bit silly.
And the CEO, Enrique Salem, did indeed spend about $550,000 to buy shares “recently” — though in this case “recently” means last June, and he paid just under $14 a share. For what it’s worth, that’s about all the insider buying there’s been at SYMC — there have been vast swathes of stock awards and options exercises, but no one else jumping up to buy shares at the market price using their own actual cash munny. Not that the absence of insider buys is necessarily a big deal, or the presence of heavy insider selling — that’s the payment culture of many big tech companies. Just that we shouldn’t put too much weight on insider buys from last Summer — insider buying is a significant boost to shares on average, and the stock is up nicely since Salem last bought, but in specific cases it’s not a particularly precise predictor of what will happen next.
I’ve been tempted by SYMC a few times, and it’s hard to argue that online security will become less important, or that upstarts will be able to unseat this huge company … but I don’t have a particularly strong reason to buy right now.
Unless, of course, my bank account really does disappear over night.
If you’ve got an online security tale to tell, or stock to pitch, feel free to share your thoughts with a comment below … and if you’ve ever been an Oxford Club member, please click here to share a quick review of The Communique with your fellow investors.