There's No More 'Easy Money' In Cybersecurity Stocks

A new report by UBS analyst Brent Thrill warns cybersecurity investors that the “easy money” in the segment has already been made and that investors will need to be more selective when it comes to cybersecurity stocks.

Despite the warning and a downgrade of two top cybersecurity stocks, UBS maintains its positive overall outlook for the space.

No Spending Slowdown In Sight

UBS’s basket of cybersecurity stocks is up an impressive 36 percent so far in 2015, and the firm sees no slowdown in the momentum of the cybersecurity business any time soon.

According to the report, the three key drivers in the space, strong end-demand, a constant stream of security breach headlines and positive vendor commentary, will likely continue in coming months.

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Crowded Trade

Overall, UBS believes that cybersecurity stocks have a healthy enough near-term fundamental outlook to continue to “grind higher.” However, Thrill notes that long cybersecurity has become a crowded trade and that the easy money has likely already been made.

“All key players will lap a combination of tough comps and escalating execution expectations that will narrow the margin for error on the stocks,” Thrill explains.

Downgrades

In the report, UBS downgraded the stocks of both FireEye Inc (NASDAQ: FEYE) and Symantec Corporation (NASDAQ: SYMC).

UBS currently lists Palo Alto Networks Inc (NYSE: PANW) as its best-positioned Buy-rated cybersecurity stock. The firm also remains bullish on Buy-rated Fortinet Inc (NASDAQ: FTNT).

UBS now has a Neutral rating on FireEye and Check Point Software Technologies Ltd. (NASDAQ: CHKP) and a Sell rating on Symantec.