What’s the “$12 Stock to Save the Internet?”

What is Triple Digit Returns pitching in the cybersecurity space?

By Travis Johnson, Stock Gumshoe, November 10, 2016

“Save the internet” is a red flag for me. Without the Internet, of course, Stock Gumshoe doesn’t have much of a business… which would make me very sad. And, of course, crush my jet-setting lifestyle and force me to sell my private yacht.

OK, fine, so my investing acumen has not yet led me to a jet-setting lifestyle, and I don’t have a yacht. It’s OK — I get seasick, anyway.

But yes, a relatively stable internet is important to me. So what’s this pitch from Manny Backus’ Wealthpire folks about “The $12 Stock That Could Save the Internet?” And, frankly, what does it need saving from, anyway? That’s our assignment here at Gumshoe U today — figure out what they’re is talking about.

The ad is actually from Michael Carr, and it’s a pitch for his Triple Digit Returns newsletter service ($299/year).

And as you’ve probably surmised, it’s got something to do with cybersecurity — here’s the intro to the ad:

“You might remember a couple years ago when Apple’s iCloud service was hacked…

“Almost 500 pictures of various female celebrities were leaked, most of them of a personal nature.

“It was a dark day for those women AND for the Internet.

“And I only bring it up because it was one of the most public displays of computer hacking we’ve ever seen.

“Something that normally happens ‘behind the scenes’ where ordinary citizens have no idea what’s happening suddenly had experts questioning cloud computing services and the general safety of our online world.

“It’s a problem… a BIG problem.

“In fact, it’s so big that $122 BILLION is spent annually on the solution to this issue, something known as cyber security.

“And this market is growing exponentially. By 2021 it’s expected to nearly DOUBLE, breaking the $200 BILLION mark.”

And, of course, we get the promise of astronomical gains:

“… there will never be one true solution since as computers evolve so do hackers.

“BUT, there is a way to put a dent into this ever-growing issue that plagues our daily lives.

“And it’s the $12 company I’m telling you about today.

“Thing is, it won’t be $12 for long. In fact, I see this stock hitting $85 in the near future – a 430% gain.”

The argument from Michael Carr is that the particular specialty of this secret $12 company is Specialized Threat Analysis and Protection (STAP), which he says is a $930 million market of which the unnamed company has a 38% share.

So who is it?

This is, sez the Thinkolator, almost certainly FireEye (FEYE), the cybersecurity stock that went from darling to disaster very quickly following its 2014 IPO, and has been mostly in a holding pattern right around $12 this year after the stock bottomed out around $10 — though it has gotten some attention following the hacked emails during the election campaign, and has popped up to about $14 falling the election (that’s not company-specific, pretty much all cybersecurity stocks popped up by at least a little bit).

FireEye’s specialty is, indeed, threat analysis and protection — to oversimplify, their systems aim to intercept attacks before they hit firewalls. You can see a pretty good explanation of what that means in a market report by IDC that’s about a year old (that’s also the source of the claim that FireEye has 38% of that market, by the way).

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And this is where I get gummed up whenever I look at a cybersecurity company — I worry about the role of smaller and independent security vendors like FireEye and Imperva and newer “hot” stocks like Infoblox in relation to the large enterprise providers or much larger vendors like Cisco (CSCO) (which bought SourceFire — a company that was, coincidentally, teased by Matthew Carr back when he worked for Oxford in 2011 — so I guess cybersecurity is not a new field for him) or Intel (INTC) (which bought McAfee years ago but seems to have struggled a bit to figure out what to do with it) or Check Point Software (CHKP), just to name a few of the larger players. I don’t really know who is going to get the best access to customers, and I certainly don’t have enough specific cybersecurity expertise to be definitive about assessing which company has the best product.

Which means, for the most part, that investing in individual cybersecurity companies, for me, has to come down to the financials and the analyst expectations — because even though analysts tend to be quite wrong in their estimates, they are, as a group, at last far more informed about and expert in the specific business prospects for each company than I am. So I do sometimes look through to see if there are cybersecurity stocks where a valuation disconnect exists, and sometimes I’ll speculate on those or on a basket of stocks, but I wouldn’t ever bet big on one cybersecurity stock.

The most recent position I had in that sector was, as a way of essentially giving up on differentiating the prospects of the companies involved, the PureFunds ISE Cyber Security ETF (HACK) — I don’t have a position in that ETF right now, but that would probably again be the first place I’d look if I were interested in a “big picture” buy in the cybersecurity market in general. Unfortunately, because of the wildly different performance of stocks in that ETF, including some dramatic losers like FEYE in recent years, you certainly do miss out on some of the upside of the companies that turn out to have the most investor appeal.

There is also an investing motif for cybersecurity that you can research if you’re interested in the sector — even if you don’t use motif investing, they provide a list of stocks that you can follow up on. And the performance of those stocks over the past year is reported on the Motif page, so that again calls attention to the fact that this sector includes stocks with seriously different levels of performance, they do not all trade together — you can see 50%+ gains for Symantec and Infoblox versus 30%+ drops for several firms (including FireEye and Imperva).

So how do things look for FireEye right now? Well, they did beat nicely on their earnings last week, which is much of the reason for the stock’s pop — and that’s good, because the stock has been in dire need of some optimism all year to encourage investors. There’s a