(04/30/14) Three Ways to Battle Cybercrime

2013 was the worst year yet for cybercrime; authorities recorded a 62% increase in the number of data breaches from the previous year, resulting in more than 552 million identities exposed, explains Tom Scarlett in Smart Tech Investor.

We’re still figuring out the best ways to protect data in cyberspace and the market is changing and expanding very rapidly.

Many companies in this market have not amassed much of a track record yet. However, the ones that prevail could provide explosive profits. As always, higher risk and higher return go together.

NICE Systems (NICE)

NICE Systems is the leading provider of software systems that enable private companies and other organizations to fight financial crime, and safeguard people and assets. These systems analyze data from multiple sources, including phone calls, mobile apps, emails, chat, social media, video, and transactions.

NICE solutions are used by over 25,000 organizations in more than 150 countries, including over 80 of America’s 100 largest companies.

The Israel-based firm has a market cap of just $2.5 billion, but it’s already profitable and is offering a dividend yield of 1.5%. Yet its price-earnings ratio is just 15 times forward earnings, much lower than many of its peers. The combination of established earnings and strong growth prospects makes it a standout in this sector.

Verint Systems (VRNT)

Another company to keep an eye on is Verint Systems. The New York-based firm has one operating division that concentrates on commercial application and another that focuses on security.

There’s been a lot of political controversy in the last ten years over the extent to which communications companies must provide communications content and data to national and international law enforcement agencies.

Verint is one of the leaders in assisting these private companies with complying with these government mandates. It also assists the agencies themselves in sifting through the—with an eye toward preventing terrorism—financial fraud and other crimes.

Unlike NICE, Verint is not yet profitable, although it does offer a dividend yield of about 1%. The stock trades at about 17 times forward earnings and the share price has risen substantially in the last 12 months.

FireEye (FEYE)

A third company in this segment is FireEye, which has developed a virtual machine-based security platform that provides real-time threat protection to corporations and governments worldwide against the next generation of cyber-attacks.

The idea is to identify and prevent highly sophisticated cyber-attacks that can circumvent traditional signature-based defenses, such as next-generation firewalls, IPS, anti-virus, and gateways.

FireEye’s concepts are fascinating, but the stock has been on a roller-coaster ride in recent months, and it seems wise to watch this one a little longer before deciding to invest. For the moment, NICE Systems looks like the best choice in the small-cap big-data market.