Day: September 30, 2024

The ongoing digital transformation of the global economy created massive wealth for investors as a defining theme in the stock market. As technology plays an increasingly larger role in our daily lives, the rise of digital threats targeting people and organizations has made cybersecurity more important than ever.

Companies offering innovative solutions to secure online networks and sensitive information stand to benefit from a significant growth opportunity for the foreseeable future.

Here are two cybersecurity stocks that could make a great addition to your portfolio.

1. Palo Alto Networks

Palo Alto Networks (NASDAQ: PANW) is recognized as a cybersecurity pioneer and the first pure play in the industry to reach the milestone market capitalization above $100 billion late last year. That position as the world’s biggest security player represents a major competitive advantage through its brand recognition and market influence, highlighting a key part of the stock’s attraction as an investment opportunity.

Palo Alto found success by introducing several disruptive innovations while building a comprehensive cybersecurity platform covering network security, endpoint security, and cloud security. The stock returned 394% in the last five years, capturing a wave of strong growth and accelerating profitability.

In the last reported fiscal fourth quarter (for the period ended June 30), Palo Alto Networks reported a 12% year-over-year revenue growth while earnings per share (EPS) increased by 5%. More impressive was the momentum in annualized recurring revenue (ARR) from next-generation security products, which grew by 43% year over year, suggesting a runway into 2025 and beyond.

The company believes its ARR for next-generation security including zero-trust solutions can triple in size by fiscal 2030. Management is citing strong demand for recent subscription-based product launches incorporating artificial intelligence (AI) tools as a strategic focus for the company.

In terms of valuation, shares are trading at 53 times their consensus year-ahead EPS as a forward price-to-earnings (P/E) ratio. While that multiple may seem expensive, the premium is justified given the company’s leadership and positive outlook. The expectation for Palo Alto Networks to consolidate market share and deliver strong earnings should allow shares to trend higher over the long run.

2. Fortinet

Fortinet (NASDAQ: FTNT) is another cybersecurity leader that competes with Palo Alto Networks in several categories but has key differences in its technology approach. In this case, the company stands out with an emphasis on combining specialized hardware products with its proprietary software to protect networks from threats such as unwanted access or hacker intrusion.

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Even as cloud-based protection can represent a viable cost-effective solution with scale advantages for many applications, firewall appliances integrated with security features still play a critical role in secure networking. Fortinet’s FortiGate firewall commands more than 50% of the global market share as a cornerstone for the company’s broader operating system.

Indeed, Fortinet is positioned to benefit from the rise of AI and related data center infrastructure. Through 2028, the company sees the secure networking market growing by an average annual rate of 15% as a driver for the business. Fortinet is also betting big on its own AI capabilities, incorporating machine learning and automation for optimized threat detection and security monitoring.

In the near term, Fortinet is guiding for full-year revenue growth above 10% from 2023 while its EPS target of around $2.02 represents a 25% increase from last year. Even with shares up 31% over the past year and currently trading near an all-time high, I believe the rally can keep going. Compared to Palo Alto Networks, Fortinet stock trades at a lower forward P/E of 33, which I believe makes it the value pick of the two.

The big picture for investors

Secular tailwinds make cybersecurity one of the most exciting segments of the technology sector with the potential to reward shareholders over the next decade. I believe Palo Alto Networks and Fortinet both deserve a buy rating and are good options to capture the high-level themes driving the cybersecurity market.

Should you invest $1,000 in Fortinet right now?

Before you buy stock in Fortinet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Fortinet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $743,952!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet and Palo Alto Networks. The Motley Fool has a disclosure policy.

2 Cybersecurity Stocks You Can Buy and Hold for the Next Decade was originally published by The Motley Fool

(Bloomberg) — Japanese stocks tumbled after Shigeru Ishiba’s surprise victory over Sanae Takaichi in the ruling party’s leadership race wrongfooted investors who had bet on a boost from more monetary stimulus from his rival.

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The Nikkei 225 Stock Average slid 4.8% to 37,919.55 as of the market close on Monday, the most since Aug. 5, when shares plunged into a bear market. The broader Topix index dropped 3.5%. Ishiba’s selection forced investors to pare positions that had been built on speculation Takaichi would become Japan’s new prime minister and encourage the Bank of Japan to keep interest rates low.

The yen gained 0.2% to 141.97 per dollar, while 10-year bond futures for December delivery fell 57 ticks to 144.65.

The Nikkei underperformed the Topix by more than one percentage point, a sign that the selloff was driven by short-term speculators, who prefer to trade the Nikkei because of its high liquidity and volatility.

Exporters were the heaviest drag on the Topix on concerns over the yen’s strength. The banking sector was the only gainer among 33 industry groups.

“There’s no surprise in today’s fall given how much the market had rallied in the last several sessions on hopes that Takaichi would win,” said Kohei Onishi, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “This will be a temporary move. Investors have been buying Japanese stocks on hopes about inflation, wage hikes and market reforms — not on BOJ easing. The market will go back to focus on fundamentals.”

Ishiba in general has remained supportive of the central bank continuing its path away from ultra low rates in contrast to Takaichi, who characterized further rate hikes for now as “stupid.”

Kyodo News reported that Katsunobu Kato is set to become the next finance minister, a move that is seen to ease worries that Ishiba may radically scale back some of former Prime Minster Shinzo Abe’s reflationary policies. Kato has been a supporter of Abenomics.

Ishiba has called for more clarity on the BOJ’s plans to normalize policy, and emphasized greater development of regional economies to tackle depopulation in rural areas, aided by government spending.

“He didn’t talk much about monetary policy or tax hikes when he appeared on some TV programs during the weekend,” said Yugo Tsuboi, chief strategist at Daiwa Securities. “He is probably refraining from talking about policies that make markets nervous ahead of a likely election.”

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Japan’s parliament is expected to confirm 67-year-old Ishiba as prime minister in a vote slated for Oct. 1. Investors’ attention will likely then turn to the timing for a general election, which Ishiba aims to hold on Oct. 27.

Bets Back on for BOJ Hikes After Ishiba’s LDP Win, Analysts Say

Morgan Stanley MUFG Securities Co. recommends investors focus on domestic demand-oriented stocks, until concerns about growing corporate tax burdens are cleared. Goldman Sachs Group Inc. warns volatility will likely persist in the short term until Ishiba clarifies his stance “on areas of investor concern such as corporate governance reform and tax rates on financial asset income.”

–With assistance from Aya Wagatsuma and Winnie Hsu.

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©2024 Bloomberg L.P.

Brookfield Infrastructure (NYSE: BIPC) (NYSE: BIP) has been a great dividend stock since its formation 15 years ago. The global infrastructure operator has increased its payout every year, growing it at a robust 9% compound annual rate. That has given it the fuel to create tremendous value for investors over the years, with early shareholders earning a 6.6x return on their initial investment.

Many investors would likely jump at the chance to go back in time so they could buy shares at its launch. The good news is that you don’t have to time travel because Brookfield Infrastructure currently trades at a historically cheap valuation multiple. Even better, its future growth prospects are stronger than ever. That makes right now an ideal time to start a position or add to an existing one.

A historically cheap stock

When Brookfield Infrastructure came public 15 years ago, it traded at about 15.5 times its adjusted funds from operations (FFO). Over the last 10 years, it has traded at an average of 16x its price-to-adjusted FFO, with its valuation higher over the last five years (16.5x).

However, its valuation has fallen in recent years, mainly due to the impact higher interest rates have on companies with a high dividend yield, like utilities. Higher rates make alternative income-generating investments like government bonds more attractive.

As a result, the valuations of yield-focused vehicles tend to fall, driving up their dividend yields to entice income-focused investors. We’ve seen this in Brookfield’s valuation multiple, which has fallen to a historically cheap 14.4x today.

That valuation is even more attractive when compared to other utility-like companies. Brookfield Infrastructure currently offers a higher dividend yield (around 5%, compared to roughly 3% for the average utility) even though it expects to grow its payout faster (5%-9% annual target versus the roughly 4% projected average growth rate of that sector). Brookfield also has a lower risk profile (more diversification than utilities and less exposure to the more volatile consumer sector).

Gale-force tailwinds

Brookfield Infrastructure has grown briskly over the years by expanding into additional infrastructure platforms to capitalize on three global investment megatrends: decarbonization, deglobalization, and digitalization. These catalysts have helped fuel 15% compound annual FFO-per-share growth since its formation. It has benefited from strong organic growth drivers and its asset rotation strategy to pivot its portfolio to better capitalize on the three “D” megatrends.

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That strategy should pay big dividends in the coming years, due in part to the digitalization trend vastly surpassing its wildest expectations. The emergence of AI has broader implications for its business than it anticipated. Because of that, the overall trend will require a tremendous amount of investment capital to upgrade and grow the infrastructure needed to support this technology. That’s providing a deep opportunity set of potential investments that has vastly exceeded its expectations.

Roughly 60% of the company’s business should benefit from the digitalization megatrend. That’s because energy and data are interconnected. The global economy will need a tremendous amount of electricity to power data centers and transmit data.

That feeds into the company’s ecosystem. It operates midstream infrastructure that supplies natural gas to utilities. The company also operates utilities that will need to deliver more energy to customers in the future. In addition, Brookfield owns and develops digital infrastructure like data centers, cell towers, and fiber optic networks, which are crucial to the digital age.

These factors drive the company’s view that its current portfolio is more valuable than it initially assumed. Meanwhile, its investment opportunity set is massive, far exceeding its previous expectations. That leads the company to believe the future could be even better than the past.

An incredible opportunity

Brookfield Infrastructure trades at a historically low valuation multiple these days. That discount is completely unwarranted. The company’s growth tailwinds have never been stronger, which should enable it to grow its earnings briskly while increasing its high-yielding dividend at an above-average rate.

Add in the potential for a valuation boost, and Brookfield Infrastructure could produce tremendous total returns in the coming years. That makes it look like a screaming buy right now.

Should you invest $1,000 in Brookfield Infrastructure Corporation right now?

Before you buy stock in Brookfield Infrastructure Corporation, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Brookfield Infrastructure Corporation wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $743,952!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

Matt DiLallo has positions in Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

A Historic Buying Opportunity: This Top Dividend Stock Is a Screaming Bargain Right Now. was originally published by The Motley Fool

The S&P 500 (SNPINDEX: ^GSPC) has advanced 20% year to date due to strong interest in artificial intelligence and surprisingly robust economic growth. But certain Wall Street analysts believe UiPath (NYSE: PATH) and Roku (NASDAQ: ROKU) are undervalued.

• Sanjit Singh at Morgan Stanley has set UiPath with a bull-case price target of $40 per share by September 2025. That forecast implies 212% upside from its current share price of $12.80

• Nicholas Grous and Andrew Kim at Ark Invest have set Roku with a base-case price target of $605 by December 2026. That forecast implies 712% upside from its current share price of $74.50.

As a rule, investors should never put too much confidence in price targets, especially when they come from individual analysts. Nor should they take the implicit gains for granted. But UiPath and Roku warrant further consideration.

UiPath: 212% implied upside

UiPath specializes in robotic process automation (RPA), one of the fastest-growing software markets. Its business automation platform includes task and process mining tools that help users identify opportunities for automation, and development tools that help users build software robots capable of automating those tasks and processes.

Morgan Stanley says UiPath is the “clear category defining leader” in RPA, but analysts have acknowledged the company in other areas. For instance, the International Data Corp. recently recognized UiPath as a leader in intelligent document processing (IDP) software, which blends artificial intelligence and RPA to automate tasks like document classification, data extraction, and sentiment analysis.

UiPath reported mixed financial results in the second quarter of fiscal 2025 (ended July 31). The average customer spent 15% more and revenue increased 10% to $316 million. But non-GAAP gross margin contracted about 3 percentage points, and adjusted earnings fell 55% to $0.04 per diluted share. However, investors have reason to be cautiously optimistic.

UiPath brought co-founder Daniel Dines back as CEO in June to improve sales execution, especially where growth products like intelligent document processing are concerned, and to steer the company through an uncertain economy. Improvements will require time, but Dines said he was encouraged by the early progress in the second quarter. “I’m particularly excited about the success we’ve seen with our IDP solutions.”

Going forward, Wall Street expects UiPath to grow sales at 10% annually through fiscal 2026 (ends April 2026). That estimate leaves room for upside because the RPA market is forecasted to grow at 40% annually through 2030. However, the current valuation of 5.2 times sales is reasonable even if the Wall Street consensus is correct.

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Absent a significant acceleration in growth, UiPath shareholders have very little chance of triple-digit returns in the next year. But investors willing to hold the stock for three to five years at a minimum should consider buying a small position today. UiPath could be a rewarding turnaround story.

Roku: 712% implied upside

Roku’s streaming platform connects consumers, content publisher, and advertisers. The company monetizes paid content by charging fees for transactions processed through Roku Pay, and it monetizes ad-supported content by selling inventory and ad tech software. Roku sources advertising inventory from content publishers on the platform, but it also operates an ad-supported service called The Roku Channel.

Roku is the most popular streaming platform in the U.S. as measured by streaming time, and the company is well positioned to maintain its leadership. Roku OS is the best-selling TV operating system in the U.S., Canada, and Mexico, which points to brand authority. Indee, in the second quarter, Roku OS was more popular than the next two operating systems combined in terms of TV unit sales.

Roku reported encouraging results in the second quarter. Active accounts increased 14% and streaming hours jumped 20%, which means the average account engaged with the platform more frequently. In turn, revenue rose 14% to $968 million and adjusted EBITDA improved to $44 million, up from a loss of $18 million in the prior year. Investors have good reason to think the company will maintain its momentum.

In addition to Roku being the most popular streaming platform in North America, The Roku Channel is the eighth-most popular streaming service in the U.S., outranking Max by Warner Bros. Discovery and Paramount+ by Paramount Global. That leaves the company well position to benefit as streaming accounts for more of TV viewing time and advertisers spend more on connected TV (CTV).

Wall Street expects Roku’s revenue to compound at 13% annually through 2025, but that estimate leaves room for upside. CTV ad spending is projected to grow at 12% annually during the same period, and Roku’s leadership in the North America (coupled with its expanding presence in international markets) could lead to faster-than-expected growth.

Having said that, the current valuation of 2.8 times sales is reasonable even if the Wall Street consensus is accurate. Personally, I think Ark’s price target of $605 per share is absurdly high. But I also think Roku can beat the S&P 500 over the next three to five years. So, patient investors should feel comfortable buying a small position today.

Should you invest $1,000 in Roku right now?

Before you buy stock in Roku, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Roku wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $743,952!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

Trevor Jennewine has positions in Roku and UiPath. The Motley Fool has positions in and recommends Roku, UiPath, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.

2 Growth Stocks to Buy Before They Soar 212% and 712%, According to Certain Wall Street Analysts was originally published by The Motley Fool

Sure, Wall Street. Go ahead. Ride the dragon.

There was a moment of grace on Tuesday for investors, market analysts, and finance’s top brass when Beijing announced measures to try to reinvigorate China’s croaking economy. Pan Gongsheng, a governor of the People’s Bank of China, the country’s central bank, announced that 800 billion yuan, or about $114 billion, would be injected into the stock market. Policymakers also said they were discussing raising a fund designed to stabilize stocks and announced rules allowing Chinese banks to keep less money in reserve, freeing up 1 trillion yuan to go out asloans. They also lowered the People’s Bank of China’s medium-term lending rate and key interest rates for banks and customers. Homebuyers can also now put less money down on their purchases — an attempt to breathe life into China’s moribund property market.

The immediate reaction from Wall Street was all-out jubilee. Since the pandemic, China’s leader, Xi Jinping, has done little to stop the bleeding in the country’s property market or to get China’s ailing consumers to start spending money again. The Shanghai Composite lost nearly a quarter of its value. American companies in China are getting crushed. Foreign investors are pulling record amounts of money out of the country. This week’s announcements sent Wall Street into a state of rapture, hoping that the Chinese Communist Party is now, as in years past, prepared to catch a falling knife. The Golden Dragon index — a collection of Nasdaq-traded companies that do most of their business in China — rallied 9% following the announcements. Financial-news talking heads heralded this as a clear sign from Beijing that policymakers were getting real about stopping China’s descent into a deflationary funk. There would be more mergers and acquisitions! Lower rates could mean more private-equity activity! The famous Beijing “bazooka” could finally be on the way!

But honey, they are delusional.

Xi’s Beijing lacks the will and the power to turn China’s economy around. At the heart of its problems is a lack of consumer demand and a property market going through a deep, slow-moving correction. Xi is ideologically opposed to jump-starting consumer spending with direct stimulus checks. No will. As for the power, Goldman Sachs estimated that returning China’s apartment inventory to 2018 levels would require 7.7 trillion yuan. China’s property market is so overbuilt and indebted that the trillions in stimulus needed to fix the problem — and make the local governments that financed it whole again — would make even a rapacious fundraiser like OpenAI CEO Sam Altman blush. The “stimulus” China’s policymakers are offering is a drop in a well, and they know that. Wall Street should too. But I guess they haven’t learned.

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The measures the CCP announced are intended to make it easier for Chinese people to access capital and buy property, but access to debt is not the problem here. People in the country do not want to spend money because they are already sitting on large amounts of real-estate debt tied to declining properties. Seventy percent of Chinese household wealth is invested in property, which is a problem since analysts at Société Genéralé found that housing prices have fallen by as much as 30% in Tier 1 cities since their 2021 peak. Land purchases helped fund local governments so they could spend on schools, hospitals, and other social services — now that financing mechanism is out of whack. Sinking prices in these sectors, or what economists call deflation, has spread to the wider economy. The latest consumer price inflation report showed that prices rose by just 0.3% in August compared to the year before, the lowest price growth in three years, prompting concerns that deflation will take hold, spreading to wages and killing jobs.

Given that context, many Chinese people are not eager to spend. Consumers are trading down to cheaper products, and second-quarter retail sales grew by only 2.7% from the previous year. In a recent note to clients, the business surveyor China Beige Book said that business borrowing had barely budged since all-time lows in 2021, during the depths of the pandemic. Bottom line: It doesn’t matter how cheap and easy it is to access loans if no one wants to take one out.

“These mostly supply-side measures would certainly be helpful if the problem in China was that production was struggling to keep up with growth in demand,” Michael Pettis, a professor of finance at Peking University and a Carnegie Endowment fellow, said in a recent post on X. “But with weak demand as the main constraint, these measures are more likely to boost the trade surplus than GDP growth.”

The most direct way to spur demand in a deflating economy is to send checks to households. But again, Xi doesn’t want to do that. The Chinese president is a follower of the Austrian economist Friedrich Hayek, who believed that direct stimulus distorts markets and leads to uncontrollable inflation. This flies in the face of what economists would recommend for China’s situation, but those who criticize the way Xi does things tend to disappear.

It’s clear that Beijing’s recent moves won’t solve China’s core economic problems. And Wall Street’s excitement misses another key problem: The measures aren’t even all that big. Call it a bazooka or a blitz or whatever, but this stimulus is tiny compared with what we’ve seen from the CCP in the past. In 2009, the government dropped 7.6 trillion yuan to save the economy during the global financial crisis. In 2012, it dropped $157 billion on infrastructure projects. In 2015, it injected over $100 billion into ailing regional banks and devalued its currency to boost flagging exports. The CCP has shown that it’s willing to take dramatic action to stabilize the economy. The price of that action, though, is massive debt built up all over the financial system, held especially by property companies, state-owned enterprises, and local governments. In the past, monetary easing calmed gyrations in the financial system, but growth has never been this slow, and debt has never been this high. The problem does not match the price tag here.

The Chinese Communist Party has a bubble on its hands, and it doesn’t want to blow much more or see it burst in spectacular fashion. Plus, there’s Xi, who seems fairly uninterested in restructuring the property market. He wants government investment to focus on developing frontier technology and boosting exports to grow the economy out of its structural debt problems. But those new streams of income have yet to materialize for China, and establishing them will take time and working through trade conflict, principally with the US and the European Union. Consider the easing measures we’re seeing as something like a moment for markets to catch their breath — a respite from what has been a constant stream of bad economic news. But a respite is all it is.

Linette Lopez is a senior correspondent at Business Insider.

Read the original article on Business Insider