The problem isn’t that there’s no good news out of individual companies. It’s just that good news on specific stocks doesn’t count for much in a bear market when everything moves together in a single direction–most usually down.
Take Palo Alto Networks (PANW), a member of my Jubak Picks Portfolio. The shares are down 19.3% since I added them to this portfolio on June 22, 2019.
First, recently Palo Alto announced that it would acquire CloudGenix for the reasonable, it seems to be, price of $420 million. The acquisition will strengthen the access and networking capacity of Palo Alto’s Prisma Access SASE platform to extend to remote locations.. And it’s the kind of acquisition that Palo Alto should be making, again in my opinion, coronavirus or no coronavirus. The fight for market share in the cybersecurity market will in good part hinge on the ability of security companies to offer their software services as part of a robust network platform. Cybersecurity companies are, after all, competing with companies like Cisco Systems (CSCO) that are increasing building security services into their networking platforms. And to deliver security solutions across networks that have multiple locations and types of access devices. Security isn’t secure these days if it only protects the core PC-based network and leaves tablets and smart phones vulnerable.
Secondly, the semiannual Instinet survey of 50 CIOs shows that while CIOs expect information technology to decline this year with a majority seeking cut in PC buying and declines in spending on AI and servers. But security was considered a higher priory by 86% of respondents. (68% said they would prioritize clouding spending.) The survey suggests that companies don’t see security spending as discretionary spending and that they will spend to keep their networks secure.
Third, I expect the amount of spending on every non-discretionary security software to slow, it doesn’t look like the slowdown, at least as envisioned by Wall Street analysts is going to be devastating. (Yes, that’s where I think we are right now. Trying to find companies where the revenue decline is going to be less than “devastating.”) For example, JMP Securties analyst Eric Suppiger has lowered his estimates for calendar year billings and revenue for network infrastructure and security companies. But the new estimates are just 10% lower. That’s less than his estimate for the drop in revenue across the broader technology sector. That lead to a new target for Palo Alto of $201, down from $235 a share.
The stock closed at $165.54 today, up 1.02%.
Palo Alto is on my Dip-O-Meter list of future buying opportunities on my subscription JubakAM.com site.
