Gregory Bergman
Editor-in-chief, CapitalWatch
We will get to cybersecurity stocks and how two main drivers, the
rise in telecommuting amid the coronavirus and fear of cybercrime, are
moving the industry and the stocks in the right direction.
But first: China is out of control.
Trump is right on this. And no, I am not just saying that because he
finally decided to wear a mask after six months and nearly 150,000
Americans died from a virus that could have been better contained.
Now, before my Chinese readers (and employer--CapitalWatch.com is
Chinese owned and focused) prepare to dismiss my services, at least
Google-translate the full article, imperfect as such translation will
be, before making any rash decisions.
Do you know who also makes rash decisions? Trump. There, that should save my job for at least another paragraph or two.
Some Unenchanted Evening
I got on this topic after yet another unpleasant evening with a
family member, whose hostile brand of wokeness is so impenetrable it
renders all conversation impossible; talking to him is like talking to a
tweet on a wall. For the very mention of "alleged" Russian attempts to
steal data from American and British companies and organizations working
on Covid-19 vaccines prompted an extemporaneous lecture about the
historical American meddling around the world: "We can't criticize them;
we do the same thing."
Well, we don't, and we can.
But first, should we care that Russia steals some data so it can
develop its own vaccine? Yes and no. In a perfect world, scientists from
all nations would share data to assist in expediting the development of
a viable vaccine. But we do not yet have a one-world government, and
theft of this kind creates bad incentives for private companies using
their own (and their own government's) resources to develop a Covid-19
vaccine in record time.
The pace of the vaccine race is already such that experts worry it
could have a countereffect on Americans, many of whom are already
stupidly skeptical of vaccines, to begin with. The last thing we want to
do is provide an incentive to cut corners. Not only may the vaccine and
its first brave volunteers suffer, but the entire vaccine
infrastructure in America could be put in peril. More importantly, my
stock in Moderna (MRNA) might go down even further.
Spy vs. Spy
Every nation that can spy does and we are no exception (just ask
Angela Merkel). But there is spying and then there is dedicating a vast
amount of resources intent on causing chaos. That's what Russia does;
that is Putin's M.O., not ours.
And China? China's M.O. is different. At least that's what we believed.
We believed that China, unlike Russia, does not want to destroy
liberal democracies around the world, it just does not want to adopt the
liberal model for itself. We believed that China (and maybe this was
true before Xi) could be a cruel authoritarian at home but a peaceful,
albeit kleptomaniacal, actor on the world stage. These last months have
illustrated otherwise.
In the last 60 days, China clashed with India at the border, ended
the so-called "golden age" of relations with Britain, and cracked down
on Hong Kong. China has upset Japan by sending ships to islands
disputedly claimed by both nations. The Chinese are even fighting with
Australia. Yes, Australia. China imposed 80% tariffs on the country
after it pushed for an inquiry into Covid-19.
It will take a lot more than some free shipments of surgical masks
and a couple of weird billboards in Sarajevo to convince the world that
China, at least under Xi, is ready for global leadership. The nation has
squandered any goodwill during the Covid-19 crisis in the way that
America squandered any goodwill after 9/11. Trump, for how bad he is in
every imaginable way, will be an afterthought worldwide if he is beaten
in November; China's recent bullying blunders make the rapid restoration
of withering alliances seem not only possible but potentially pretty
easy.
So, what does America do? Well, first, silly stuff like calling
Covid-19 the "China virus" doesn't do any good. That said, the overly
woke should know that the early use of the phrase "Wuhan Virus" was not
inherently racist. Ever been to Lyme, Connecticut? Well, that's where
Lyme disease originated, and no one considers this to be racist towards
Connecticuters. Nor does anyone get into a fuss about the West Nile
Virus, Zika, Rocky Mountain Spotted Fever, or German Measles--to name a
few of many illnesses named after their place of origination. Also, the
Han Chinese are not a minority; just ask an Uyghur.
Now, I am not advocating Trump to use that term or any other
considered pejorative. To throw the language of Trump apologists back in
their faces: "It's not what he says, but what he means."
Well, what he means to do is stigmatize China and the Chinese people
and deflect from his own failings. What he means is that China is
responsible for the fact that we are the most hard-hit nation in the
West. That falls squarely on our tired shoulders.
But should we castigate China for obfuscating the truth of the virus'
ferocity and the level of its containment? Absolutely. Because do you
really think Britain or Germany or the U.S would have done the same if
the situation were reversed?
I am not moralizing for moralizing's sake. But shame can work, just
not when uttered from the mouth of the most shameful of persons. Shame
can serve to bring the world together to contain our Asian adversary
long-term.
Rhetoric in the service of Realpolitik, not "Tweetpolitik."
Here's Hoping for a Lukewarm Cold War
While a cold war with China over tech and global economic dominance
is inevitable, but this cold war need not run as hot as the last one (or
the current one with Russia, for that matter, which puts tens of
millions of people in danger of being vaporized every single day).
Back to Beijing. Is the question facing the U.S. as simple as China's Ambassador to the U.S. Cui Tiankai says it is?
"The fundamental question for the United States is very simple: Is
the United States ready or willing to live with another country with
very different culture, very different political and economic system?"
said Cui during an interview with CNN's Fareed Zakaria.
To answer your question, Mr. Cui, let me respond with a question of my own.
If by "different culture" you mean wet markets (yes, I went there)
that repeatedly cause worldwide pandemics and further endanger
endangered species; and if by "political system" you mean the kind that
covers up a deadly pandemic; and if by "economic system" you mean
intellectual property theft on a massive scale, then no, we, the rest of
the world, do not have to live with it.
But we do have to live with China. It is too big to fail. We should
shame, but shame smartly--as part of a long-term stategy. In the past,
too much time and energy wasted in half-hearted efforts to push back on
China for internal human rights abuses. No one in the world believed us,
anyhow.
The stick or the carrot? Our strategy with China for decades has been
to proffer a twig with a carrot stuck to it in one hand and an iPhone
in the other only to realize that we sold both the stick and the carrot
back to Beijing. As for our iPhones, now they are used against us, our
data being stolen and sent to China as we dance around mindlessly in
TikTok videos, our cities burning in the background.
Closing a Houston consulate is not the answer, nor is punishing
international students. But Trump's impulses are right. As are the
impulses of many of the Democrats, many of whom have been awakened from
their wokeness regarding China. Even left-leaning news sources like The
Guardian get it. In a recent article, The Guardian quoted President Xi
who said this in a rare meeting with business leaders this week in
China.
"While the green hills last, there will be wood to burn," Xi said.
"If we maintain our strategy ... we will find opportunity in crisis and
turbulence. The Chinese people will surely prevail over all difficulties
and challenges ahead."
Xi Wiz. How do you spell "WTF?" in Mandarin?
For all its long-term thinking, China has completely blown a golden
opportunity to lead, an opportunity Trump offered up on silver platter
through his own "America First" isolationist posture. Let us survive
Trump's missteps long enough to take advantage of Xi's. And let us
invest in the most important defense we have against its thieving
designs: Cybersecurity.
Stocking Up on Cybersecurity Equities
This week, four Republican senators announced the Strengthening
Trade, Regional Alliances, Technology, and Economic and Geopolitical
Initiatives Concerning China, or STRATEGIC Act. Sen. Bob Menendez, the
top Democrat on the Foreign Relations Committee, says he is also working
on similar legislation.
According to Global Market Insights, the cybersecurity industry will grow at an average of 12% per year. The sector could reach $400 billion by 2026.
The stay-at-home economy has rapidly pushed development in this space;
fears over Chinese and Russian cybercriminals scouring for our data will
only serve to push these stocks even broadly representing this space
higher.
Okta (Nasdaq: Okta) has been on a tear this year, gaining 73.6% in
the first half. Fiscal Q1 revenue surged 46% year over year to $182.9
million driven by a 48% increase in subscription revenue. The stock has
taken a recent dip. I would monitor this stock and expect to pounce on
it before the next quarterly in late August.
Zscaler (Nyse: ZS) is another hot stock in the cloud-based
cybersecurity space. Management raised its full year fiscal revenue
outlook to between 39% to 40%, or $422 million to $424 million. However,
a recent partnership between cybersecurity stock CrowdStrike Holdings
(Nasdaq: CRWD) and Zscaler competitor and privately-held Netskope might
render its own partnership with CrowdStrike impotent.
In an unusual multiway partnership, Crowdstrike Okta (Nasdaq: OKTA)
Proofpoint (Nasdaq: PFPT) and Netskope are working together to protect
workspaces, at home and in the office, from cyber threats. All these
four players are worth looking at long-term. You can add Cisco and Palo
Alto Networks as well, the latter of which just beat the former in
earnings and now dons the cybersecurity revenue crown. Despite the
silver medal, Cisco is undervalued and a buy.
But I like Fortinet (Nasdaq: FTNT) the best. While it took the number
three spot with about $577 million in network security Q1 revenue
during Q1, Fortinet's stock is up only 25%, an impressive incline but
not as compared to other stocks in the space. Fortinet is also moving to
the cloud where, in a world of millions of devices, the future of
cybersecurity lies. (More money in securing iPhones, rather than Fort
Knox.) That said, the Chinese love gold, so let's make sure that
perimeter is also secure.
A recent acquisition of privately held OPAQ is part and parcel of
this Fortinet's move towards the cloudy heavens. The fact that the
amount was undisclosed should not worry investors, as Fortinet held
$1.57 billion in cash and investments and no debt on its balance sheet
as of late March.
As for my own balance sheet, let's just say I'm not quite ready to
disclose the performance of my Robinhood.com foray into options trading
as promised last week.
I can say, however, that I do not expect a hacker from China--or anywhere else-- to break into my account and follow my trades.
Gregory Bergman
Editor-in-chief, CapitalWatch
(The opinions expressed in this article do not reflect the position
of CapitalWatch or its journalists. The analyst has no business
relationship with any company whose stock is mentioned in this article.
Information provided is for educational purposes only and does not
constitute financial, legal, or investment advice)
