Top 2 Cyber Security Stocks

Cyber security has emerged as a high-profile issue after a number of data breaches at major corporations. How can you protect yourself – and your portfolio?

The likes of Target (NYSE: TGT), Home Depot (NYSE: HD) and Kmart are a few of the major retailers that have been the victim of data breaches this year. Even one of the largest banks in the world, JPMorgan Chase (NYSE: JPM), isn’t immune to hackers stealing customer data.
The JPMorgan data breach alone impacted 75 million households, leaving millions of credit card numbers, names and addresses in the hands of data-theft rings and criminals.
That all adds up to a lot of leaked data, and it should make all of us a little nervous. This week at Wyatt Investment Research, we’re taking a closer look at cyber security stocks, culminating with the launch of our new report: Profiting from Cold War 2.0: Best of Breed “Digital Defense Contractors” for Your Portfolio, which also comes with a free copy of the book Identity Theft Alert: 10 Rules You Must Follow to Protect Yourself from America’s #1 Crime.
When a breach does occur, some companies like Target offer a year’s worth of free credit monitoring, but that probably doesn’t lessen your anxiety too much if you’re a victim. Prevention is the best solution when it comes to data and identity theft. Using one of the major credit- reporting companies to monitor your credit is never a bad idea.
Thus, a couple of underrated players for the rising importance of cyber security are the credit bureaus. These guys are known for providing credit scores and credit reports, but they also provide credit monitoring services and identity-theft protection products.
As the economy continues to recover, lending should increase, building demand for credit ratings and reports. Credit-reporting companies should be big benefactors of increased credit applications – at least for car loans and credit cards, even if home loans continue to be very difficult to get (even Ben Bernanke couldn’t get one).
The two top players in credit reporting are Equifax and Experian. Let’s see how they stack up.

Equifax Inc. (NYSE: EFX)

Equifax is the second-largest credit-reporting agency in the United States. It has an $8.7 billion market cap and offers a 1.4% dividend yield.
One of the key opportunities for this cyber security stock is increasing its international business, where it now generates only about a quarter of its revenues. Equifax is focusing on less-mature markets in these areas. It already has operations in Latin America and Europe.
One key area is Brazil, where Equifax has been aggressively increasing its presence. It’s looking to increase its stake in Boa Vista,  one of Brazil’s leading players in terms of providing credit info to Brazilian businesses.

Experian (OTCMKTS: EXPGY)

This credit-reporting agency is a $15 billion market-cap company headquartered in Ireland. It offers a 2.3% dividend yield. One of Experian’s focuses of late has been acquisitions.
Fraud detection and health care are two hot categories in the business and Experian upped its presence in both last year. The company suspended its buyback plan last year after buying health-care payments company Passport Health Communications and fraud-detection company 41st Parameter.
There are just a handful of players in the credit bureau industry, as the barriers to entry remain fairly high. Experian and Equifax really dominate the market share, generating nearly half the industry revenue.
But which the best bet of the two?
Experian is the industry leader and offers the highest dividend yield. It also happens to be the cheapest in terms of valuation, trading at a price-to-earnings ratio of 20, compared to Equifax’s 26.5.
Experian also has lower exposure to the slowing U.S. mortgage market. Mortgage Bankers Association believes that mortgage applications will be down 37% in 2014. Only about 2% of Experian’s company revenues are from mortgage applications, while Equifax generates close to 15%.
By all accounts, Experian looks to be the best investment choice among the credit reporting companies.
But if cyber security is indeed a new war, there are some other companies you may not have heard of on the front lines that are poised for big profits. Find out what they are here.

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