Increased incidents of cyber fraud have made cyber security one of the hottest tech sectors in recent years. David Prince, Founder, Harbinger Capital Markets Research, talks to Kim Parlee about the most active firms in cybersecurity and his take on the sector.
Welcome back. We are continuing our look at cybersecurity. And joining me is one of our favorite guests who has been covering cybersecurity stocks for a long time, and he's seen how the sector has progressed. And I'm of course talking about David Prince. He is founder of Harbinger Capital Markets Research and publisher of the Harbinger Notebook, which is available by subscription.
Lovely to see you.
Nice seeing you. We started talking about this, I remember, back in my previous life, a long time ago here on BNN about cybersecurity. And you were, I think-- I mean, people talk about it, but you were the first one to really, I know, talk about it with me in terms of investing and some of the opportunities there. It's progressed.
It sure has, after some bruising on the way through. I think that that's one of the real elements of it is the first phase, like a lot of things, there's a whole bunch of entries and then a few survive. And then it goes on and people sort of forget.
But what's happened with the cybersecurity space, at least from the perspective of the publicly traded companies, is that what happened was they came out, and they were all expecting a whole bunch of people to belly up and spend money. But the capital spending never came through. So the revenue model that they built didn't get through to the companies. So a lot of companies fell by the wayside.
So what's happened is there's been a massive change in the last five years. And what you can see from certainly the recognition of hacking is that you've got this big change. It comes in changes in retailing. It comes in changing in terms of what we've seen from a political outcome. So our whole life has definitely been very much altered by the cybersecurity.
So I tend to look at it from the standpoint of what we're dealing with in terms of the investable universe. And the easiest way to put it is you've got a whole bunch of new entrants. You've got a bunch of seasoned veterans. You've got new guys that are old guys that are trying a new business.
And once you add up, you get a very large segment that's going to have a lot of money spent. The estimate that I've seen from the cybersecurity community is between now and 2021 there's going to be $1.5 trillion spent as a minimum amount needed. There's a lot of opportunity.
So where you get confused with cybersecurity is a lot of the big banks, for example, they have their own internal departments. Because they are hacked every day. And that doesn't mean that people get it, but they're constantly being attacked
They're in the business of being secure.
That's exactly it. And obviously, the same applies to retailing in the States. Because we saw what happened with Sears and Macy's and others. People didn't want to go and transact online with these companies.
So Amazon, for whatever reason, has been able to figure it out. And clearly, they've benefited the most, because Amazon's growth in revenue supersedes anybody in retailing. It's just been a massive amount. So Amazon's been the big winner.
The other side of it is that people have realized that if you want to get bulk, we've made that decision. We don't need to go to Wal-Mart anymore. We go to Costco.
So here we've got Wal-Mart, who used to be the big guy in retail. And suddenly he is so far behind, he's now trying to run like mad to get into the online. And to me, what's important is this is changing other businesses. And so where I'm coming from is, if you looked at just what's going on in terms of cybersecurity on its own, you can't realize that there's so many other companies that are spending a great deal and will affect their bottom line.
So last year, didn't get the spending. Didn't get the spending for a number of reasons, but we sure looked profitable. But we didn't see the guys spending the money. This year it looks like they're going to have to. So let's talk about what's out there.
OK. Who's out there? Who are they going to spend on?
So this is the big thing that you're going to see. So it's going to be broken down-- you're going to have defense companies that are doing government work. Obviously, that's going to get a lot of the bulk. So when you're looking at that, there's companies like KeyW. There's Booz Allen. But you've got a number of companies that are only in that area alone. So that's fine.
But the ones that people like to trade and be involved in are things that are in the consumer or in the business side of it-- so Proofpoint, VASCO, Qualys. All of these things are happening. I know we've got a bunch of them--
They're going to cycle behind you.
That's all right. But the main point is that make sure you make the difference in differentiating when you're looking at these companies. That's all well and good. But what do people do if they don't have the time?
Like I do.
Yeah, because I mean this is what you do for a living. And for those of us-- I mean, I think people kind of dip their toes in and realize there's single company risk on some things if you don't follow it all the time.
Right. So what I'm going to ask, if they can call it up, is let's go back and take a look at how the S&P has performed. And how S&P info-technology-- because this is where the confusion really comes in.
So we've got a picture here of the information technology, which is the orange line. And you can see how dramatic the outperformance has been for this sector versus the S&P. What I want to do now is that it's not just Apple and Facebook that everybody--
It's not the FANG stocks.
It's not the FANG stocks. In fact, when we show the next chart I want to show the breakdown of that info, which includes the stuff that I've really been pushing, which has been the Gamers. So if we look at the Gamers--
Next chart. There we go.
There we go. Gamers, cybersecurity, and the infotech. So keep in mind how dramatic that infotech was relative to the S&P. Now take a look at Gamers to the overall picture. And what I've been saying for some time is things that-- well, Take-Two, Activision, all of those, have been huge winners and have outperformed that-- and this is going to surprise a lot of people-- even Apple and stocks of that nature.
So don't turn your nose up the next time you hear somebody talking about gaming stocks. So why I bring that up is the same attitude was prevalent with the gaming stocks a year and a half ago. I'm starting to see the same thing when it comes to cybersecurity-- that it's going to not have the same lift. And I think that's wrong.
I just want to-- super interesting. I've got about a minute left, and I want to just make sure that we cover the things we want to cover. Because I know you've got a couple more charts. And I know there's an ETF you think is pretty interesting, too.
Yeah. The one that I really have been recommending, because it's the easiest way to play it, It's HACK-- how appropriate.
Best name ever.
Right. But it is Pure Funds, which trades in the United States. That is US dollars, you can see. And for all those people that are technically driven, you can see that that just broke out today.
But there are 40 names in that. They represent a pretty good cross-section of all of the stocks that are in the cybersecurity on a publicly traded basis. People have to remember, there's an awful lot. And we have one in Canada, which the fellow that's on Dragon's Den-- or was--
Herjavec, that apparently is one of the biggest in the world. And he's out of Toronto.
So that's an easier way to play it. And certainly from my standpoint, people should definitely take more interest in this sector.
David, always a pleasure. Thank you so much.
David Prince, founder of Harbinger Capital Markets Research and publisher of Harbinger Notebook. Thank you for joining us tonight.