Benefiting from the breach: Cybersecurity stocks

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Michel de Nostredame was a pharmacist. He wanted to become a doctor.

So he decided to go to medical school.

He didn't last long.

Michel was expelled. The doctors considered pharmacy a low trade. Michel was tainted by the association.

Spurned by medicine, Michel drifted to the occult. He became convinced he could see the future. Some called him a charlatan. Others called him insane.

He drew a large following anyway. People love predictions.

Even after his death, Michel's thoughts about the future remained a sensation. The name Nostradamus remains recognized 400 years later.

The prophecies? They seem pretty vague in retrospect. Could be read a variety of ways.

Here's one prediction that can't be misinterpreted:

Cybersecurity budgets are going up this year. Possibly way up.

The breach of Sony computer was a wakeup call. Sensitive data was lost. Humiliating personal e-mails were leaked. Media coverage was brutal.

Sony wasn't alone. The electronics giant was merely the latest high-profile victim of shadowy hackers.

Home Depot had 56 million customer cards compromised during a five-month malware attack. A breach at Target affected 40 million cards.

Even JPMorgan Chase was victimized. Their breach exposed 76 million homes and eight million businesses.

When the banks start getting hit, that means trouble. Financial institutions typically possess the most sensitive information and the best security. They should be the hardest to breach.

When they prove defenseless, it puts our entire financial infrastructure at risk.

While this should concern just about everyone, there is one upside. These breaches will convince businesses to take security more seriously. They'll also provide an opportunity for smart investors to benefit.

Cybersecurity spending has been on the upswing. Gartner projected global spending to increase eight-percent in 2014.

That was before some of the year's highest-profile breaches.

That projection will likely prove conservative. Why?

Cloud computing. As more sensitive information migrates to the cloud, security needs will grow.

And we're talking exponential growth. The move to cloud computing is a massive shift. It will fundamentally change the way we work and store data.

Consumer confidence is already shaken. A massive breach is just about every CEOs worst nightmare.

We know the sector is ripe. So where should we invest?

A few interesting names...

Cisco Systems is a large, established company. It also has a growing position in the space.

Cisco has focused on security in recent years, making several key acquisitions.

Fortinet is another attractive company. Its low debt, solid revenue formula is appealing. It has an attractive product line. It also has a stock price up 60-percent in 2014.

Palo Alto Networks was an analyst's darling after posting strong sales growth in 2014. Jim Cramer called the company "way ahead" of others in the space.

Investors seem to agree.

Palo Alto stock rose 113-percent in 2014. That's a number to excite anyone.

There's no such thing as a sure thing in the market.

Yet you don't have to be Nostradamus to predict a stellar year unfolding for cybersecurity stocks.

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