2 cybersecurity stocks you can buy and hold for the next decade

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

Companies that offer innovative solutions for securing online networks and sensitive information stand to benefit from significant growth opportunities in the foreseeable future.

Here are two cybersecurity stocks that could be great additions to your portfolio.

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1. Palo Alto Networks

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

Palo Alto has succeeded in introducing several breakthrough innovations while building a comprehensive cybersecurity platform spanning network security, endpoint security, and cloud security. The stock has returned 394% over the past five years, representing a wave of strong growth and rising profitability.

In its most recently reported fiscal fourth quarter (for the period ended June 30), Palo Alto Networks reported 12% year-over-year revenue growth while earnings per share (EPS) increased 5%. More impressive was annual recurring revenue (ARR) growth for next-generation security products, which increased 43% year-over-year, suggesting the market is poised to move into 2025 and beyond.

The company believes its ARR for next-generation security, including zero-trust solutions, could triple by fiscal 2030. Management cites strong demand for recent subscription-based product launches featuring artificial intelligence (AI) tools as a strategic company goal.

In terms of valuation, the stock is trading at 53 times consensus EPS for the next year as a forward price-to-earnings (P/E) ratio. While this multiple may seem expensive, the premium is justified given the company’s leadership position and positive outlook. The expectation that Palo Alto Networks will consolidate market share and deliver strong profits should allow its share price to rise in the long term.

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 by focusing on combining specialized hardware products with proprietary software to protect networks against threats such as unwanted access or hacker intrusion.

While cloud-based protection can be a viable and cost-effective solution that provides benefits that scale across multiple applications, firewall appliances integrated with security features still play a critical role in a secure network. Fortinet’s FortiGate firewall has more than 50% global market share and is the cornerstone of the company’s broader operating system.

Indeed, Fortinet stands to benefit from the development of artificial intelligence and related data center infrastructure. The company sees the secure networking market growing at an average annual rate of 15% through 2028 as a driving force for the business. Fortinet also relies on its own artificial intelligence capabilities, using machine learning and automation for optimized threat detection and security monitoring.

In the near term, Fortinet targets full-year revenue growth above 10% from 2023, while an EPS target of around $2.02 represents a 25% year-over-year increase. Even with the stock up 31% over the last year and currently trading near record highs, I believe the rally could continue. Compared to Palo Alto Networks, Fortinet stock is trading at a lower forward P/E of 33, which in my opinion makes it the best pick of the two.

The big picture for investors

The strong economic climate makes cybersecurity one of the most exciting segments of the technology sector that could deliver value to shareholders over the next decade. I believe both Palo Alto Networks and Fortinet deserve a buy rating and are good options to capture the top topics driving the cybersecurity market.

Is it worth investing $1,000 in Fortinet now?

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