Capitalize on the Most Dangerous Tech Trend in 2012

by Alexander Green, Investment U Chief Investment Strategist
Thursday, December 16, 2011: Issue #1666

[Editor’s Note: Independent Online reported on Thursday, “Hackers are bombarding the world’s computer controlled energy sector, conducting industrial espionage and threatening potential global havoc through oil supply disruption.”

Ludolf Luehmann, an IT manager at Shell Europe’s biggest company, told the publication, “It will cost lives and it will cost production, it will cost money, cause fires and cause loss of containment, environmental damage – huge, huge damage.”

In light of this chilling warning, along with recent developments on the latest super-bug, Duqu, we decided that Alexander Green’s May article about cyber crime and cyber security was as relevant as ever. Alex has been pounding the table on cyber security stocks since 2009 and believes that 2012 will be the tipping point. Find out why he’s so bullish on the sector below…]

Do you want to score big in the stock market? Then recognize an unstoppable trend and get on the gravy train before it’s too late.

In the 80s, for example, investors scored big in cable television and cellphones. Huge money was made again in the 90s on internet and technology shares. Commodities like oil and gas – and gold and silver – made investors millions over the past decade. Now an even bigger trend is emerging. Yet I estimate that not one investor in 10 has a nickel invested yet.

Consider this your wake-up call.

The internet was originally intended for a few thousand researchers, not billions of users who don’t know or trust each other. The designers placed a premium on ease of use and decentralization, not privacy and security. They never dreamed the internet would ultimately be used for trillions of commercial transactions.

And where there are great gobs of money, you will always find thieves…

Cybercrime Tops Physical Crime in 2011

Last year, for example, one out of every four companies had information, goods, or money successfully stolen by cyber criminals. (For the first year ever, the total cost of electronic theft actually topped that of physical theft.) Your social security number, personal history and medical information, your credit card numbers, even the cash you have in trusted financial institutions, are all at potential risk.

You may have read the reports a few weeks ago that Sony was forced to shut down its PlayStation network due to hackers who stole users’ information. Even top technology companies are often powerless to stop cyber crime. Sony recently admitted that it had already been hacked several times before.

This is not unusual. Companies are reluctant to admit that they have been violated by cyber criminals. Why? Number one, they don’t want to reveal their vulnerabilities to other potential hackers. Even more importantly, they are scared – and for good reason – that they’ll lose the confidence of their customers.

Yet that’s about to change. I expect the SEC to soon compel public companies to disclose their cyber-attack vulnerabilities. A group of lawmakers – including Jay Rockefeller, the powerful Chairman of the Senate Commerce Committee – has already sent a letter to the SEC asking it to issue guidance on cyber security.

The letter says, “In light of the growing threat and the national security and economic ramifications of successful attacks against American businesses, it is essential that corporate leaders know their responsibility for managing and disclosing information security risk.”

This is no idle threat. A 2009 study by insurance underwriter Hiscox found that 38 percent of Fortune 500 companies neglected to disclose the risk of data-security breaches in their public filings.

Capitalizing on Cyber Security

Does anyone really believe the SEC isn’t going to move on this issue? (Update: In October, the SEC announced that it was finally going to require more disclosure from companies on cyber attacks.)

The questions that you should be asking as an investor are, “Who is likely to benefit from this development?” and, “Where should I invest to capitalize on this trend?”

A small cadre of companies is working to protect consumers, businesses and government agencies against a wide array of cyber threats. Most of them are already highly profitable.

But tens of billions more of government money will soon be spent beefing up national security, protecting U.S. infrastructure and safeguarding the financial system. And businesses – increasingly aware that everything from research papers to client lists are being targeted by criminals and corporate spies – will soon spend billions more in this area, too.

This is a ride you won’t want to miss.

Good investing,

Alexander Green