Cybersecurity Stocks to Invest in After Colonial Pipeline Cyberattack

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May. 10 2021, Published 1:46 p.m. ET

The Colonial Pipeline, which runs 5,500 miles from Texas to New Jersey, fell victim to a cyberattack on May 7. The operation has been shut down since and the U.S. government passed an emergency waiver to the Jones Act. Cybersecurity stocks are responding to the unseemly occurrence.

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On May 10, it seems that a Russian ransomware gang named DarkSide is responsible for the attack. This event highlights the vulnerabilities for companies from every sector and the crucial nature of innovative cybersecurity in a data-driven world. 

What went down on the Colonial Pipeline?

The ransomware attack on the Colonial Pipeline led to a total shutdown that's been ongoing since May 7. 

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In response, the U.S. is loosening restrictions on petroleum transportation and allowing drivers in 18 states to transport fuel on the road as opposed to solely by ship. Due to the Colonial Pipeline closure that's seeping into this week, a lot of fuel is stuck in Texas.

The Biden administration might also need to waive the Jones Act, which regulates maritime commerce in the U.S. This would allow barges to transport petroleum. 

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Palo Alto Networks, Cisco Systems, and CrowdStrike Holdings are dipping.

In the first quarter of 2021, we witnessed cyberattacks on operations like cyber insurance firm CNA Financial and Microsoft Exchange's Server. That isn't to mention the cyberattacks on IT management firm SolarWinds, which experienced major breaches in 2020.

In response, leading cybersecurity company Palo Alto Networks (NYSE:PANW) has dipped 0.34 percent since the market open. Crowdstrike Holdings (NASDAQ:CRWD) is down 1.33 percent, while Cisco Systems (NASDAQ:CSCO) is down marginally by 0.009 percent.

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This subtle dip amid a major event shows long-term stability for the cybersecurity sector's top names. The 12-month trailing returns are in the green for PANW, CRWD, and CSCO with 56.6 percent, 145 percent, and 24.6 percent, respectively. 

Other cybersecurity stocks to consider right now

Okta Inc. (NASDAQ:OKTA) shows a similar path. The stock started the week 2.7 percent lower but is sitting at a strong 31.7 percent for the year. DocuSign (NASDAQ:DOCU) and Fortinet Inc. (NASDAQ:FTNT) show strength from a broad perspective as well, with FTNT stock especially gung-ho at 42 percent growth YTD.

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All of these stocks have also been impacted by the tech sell-off that aligns with concerns over federal interest rates and inflation. This makes them undervalued right now. 

Cybersecurity ETFs have an eye on the long-term.

The ETFMG Prime Cyber Security ETF (HACK) and the iShares Cybersecurity & Tech ETF (IHAK) follow two different indices. HACK follows a custom index, while IHAK tracks the NYSE FactSet Global Cyber Security Index.

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Both IHAK and HACK are down YTD, which reflects the trends of their underlying assets. However, they both contribute heavily to portfolio returns from a long-term lens.

As the Colonial Pipeline sheds light on the need for cybersecurity, the undervalued atmosphere of the cybersecurity market makes it a wise time to invest. Just be sure that you don't plan to use the returns soon because you'll want to hold onto this one as technology develops. 

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