Goldman Sachs Picks Cybersecurity Stocks After Colonial Attack


May. 11 2021, Published 11:08 a.m. ET

The ransomware attack on Colonial Pipelines is creating ripples in the energy markets and the White House. The attack was carried out by a cybercriminal group DarkSide and President Biden is taking regular briefings. Meanwhile, Goldman Sachs has picked some cybersecurity stocks after the Colonial Pipeline attack.

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Cyberattacks are the new age of warfare and one can cripple the adversary with these attacks. While the pace of digitization has increased over the last year due to the COVID-19 pandemic, cyberattacks will likely be the weapon of choice in the future. Even in the Colonial Pipeline attack, there seems to be some connection to Russia.

Colonial Pipeline attack, explained

Colonial has around 5,500 miles of pipelines, which carry refined petroleum products like gasoline and diesel. The pipelines carry over 100 million gallons of fuel daily and have operations in 14 states. The immediate impact could be a rise in gasoline prices that have anyways spiked in 2021 amid the rise in crude oil prices.

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Since it's a ransomware attack, the group behind the attack is looking for ransom. Usually, cryptocurrencies like Bitcoin are the preferred way for criminals to receive the ransom. Since digital currencies are decentralized and traders can remain anonymous, it's difficult to trace them.

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Goldman Sachs's cybersecurity stock list

Goldman Sachs is positive on the long-term forecast for cybersecurity stocks. Cyberattacks are the reality of the digital world that we’re living in and Goldman Sachs expects strong demand growth for companies in the space. 

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Goldman Sachs has listed the following stocks as beneficiaries of the increased spending on cybersecurity.

  • FireEye (FEYE)
  • CrowdStrike (CRWD)
  • Tenable Holdings (TENB)
  • Palo Alto Networks (PANW)

There hasn’t been a buying spree in these stocks and even Goldman Sachs expects them to be long-term plays on cybersecurity. However, the Colonial Pipeline cyberattack is the second major attack that we’ve seen in the last six months.

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In December 2020, SolarWinds’ systems were compromised as part of an intrusion campaign. Among those affected by the cyberattack were some governments including in North America. The growing wave of cyberattacks will prompt companies to spend more on cybersecurity, which bodes well for the sector’s long-term outlook.

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Which cybersecurity stock to buy?

FEYE looks like the best cybersecurity stock to buy now. “News that FEYE was reportedly retained by Colonial Pipeline supports the company’s reputation as a best of breed incident response vendor,” said Goldman Sachs in its note.

Goldman Sachs added, “In addition to greater potential demand for the company’s high margin incident response business, we believe events such as these could provide a halo effect for the rest of FEYE’s platform.”

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fireeye inc feye stock valuation
Source: TIKR

FEYE stock valuation

Currently, FEYE trades at an NTM PE multiple of 48x. The multiple has averaged 109x over the last three years and 90x over the last five years. The stock is available at a discount to its historical valuation multiples.

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Meanwhile, the valuation might seem high on an absolute basis. However, the multiples are supported by earnings growth. The analysts polled by TIKR expect the company’s adjusted EPS to rise 29 percent in 2021.

Best cybersecurity stocks

Apart from the stocks identified by Goldman Sachs, Okta, Fortinet, CyberArk Software, Zscaler, and Sumo Logic look like other good cybersecurity stocks to play the cyber warfare theme.


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