Amid Russia Attack, Cybersecurity Stocks Gain

Companies focused on protecting computer networks saw their shares gain amid worries that the Russian invasion of Ukraine may include cyberattacks.

Crowdstrike CRWD and Palo Alto PANW, closed 13% higher. Fortinet FTNT, Mandiant MNDT, and Zscaler ZS each rose 10% or more Thursday. Okta OKTA gained 8.8% and Check Point Software CHKP closed up 6%.

In recent years shares of cybersecurity companies have risen as attacks on businesses and governments increased in frequency. "The pandemic spurred a heightened threat environment as organizations focused on business continuity but were made aware of gaping defense holes," says Mark Cash, a senior equity analyst at Morningstar, in a cybersecurity report. (Morningstar Office and Direct clients can read the full report here).

Some of these names have stumbled along with other technology stocks this year, but the Russian attack has put a spotlight on the group. Russia has reportedly already targeted Ukrainian banks and government websites as a part of their pre-invasion strategy. Meanwhile, The Wall Street Journal reports that the U.S. may also face cyberattacks from Russia in retaliation to sanctions placed on the country.

Cybersecurity has been a concern for governments and companies as ransomware attacks spiked in last year, up 232% from 2019. In the last twelve months, Fortinet is up 68.6% and Palo Alto 26.4%.

After a slow start to the year, cybersecurity stocks broadly are fair to undervalued based on fair value estimates by Morningstar's analysts.

A few names remain attractive to Cash including Okta, which currently trades at a 38% discount. Shares hit a 52-low on Feb. 24, before rallying to close up 8.8% on the day.

"Narrow-moat Okta is one of our top picks within cybersecurity, and our fair value estimate of $280 per share offers considerable upside for long-term investors," Cash writes. "Identity and access management is foundational to cybersecurity and user experience, enabling workers and customers to securely access organizations' IT resources and applications. The pandemic caused well-defined security boundaries to vanish, and we think Okta is positioned to capitalize on identity becoming the new security perimeter."

Correction: An earlier version of this story incorrectly stated that Okta shares hit a 52-week high. The shares had hit a 52-week low. (Feb. 24, 2022)