Palo Alto Networks (PANW)

He loves the cyber-security theme. Earnings growth is projected in the 20-25% range. A high-quality name in the space, but trading at 20-40 times earnings. Be cautious.

Cyberspace sector? This is a long-term growth area, because Cyber Security is not going to get better, it is just going to get worse. This is a name that is very pure in this particular space. Trades at about 44X earnings on a forward basis with a 23% long-term growth rate. Not really cheap, but you are paying about 1.9X PEG in an area that is very, very important.

They have grown 50% a year. Last year they had an execution issue and dropped their guidance. He found they were growing too aggressively and it was irritating customers. People didn’t understand this was the problem. Over the last two quarters they have been beating expectations. They are at 20% free cash flow growth now. (Analysts’ target: $165.00).

Has owned this in the past. In technology, semiconductors are absolutely leading the way, or you could hold the XSD ETF which holds the basket of semiconductors. He also likes Cloud. Security has been difficult recently and has been underperforming. Given the break in the stock, he would avoid it.

(A Top Pick Oct 29/15. Up 2.18%.) Got out of this a little while ago. Longer-term, he thinks it is pretty decent. It is in the computer security business, and they are one of the highest growth companies in that space. A good long term name that he will consider entering again at some time.

Security software came under pressure in December. They were higher multiple stocks, so were a little more expensive. Feels the long-term picture for security is very, very good, but thinks that what is happening in the near term is that many of the sectors that are benefiting in this market are sectors that are a little bit more economically sensitive. The stock broke down at about $168, and is now trading at $140. He would need to see the price start to behave better, relative to the market. He would move on and look at other sectors.

Likes the name. Security is going to be a problem that is not going to disappear anytime soon in terms of corporations, governments, etc. Has owned it in the past. Volatile because it has a PE of 72-73 on a forward basis. However, it does have a 35%+ growth metric attached to it. If markets start to worry about its growth, it is going to come down, and obviously the PE is going to come down quite a bit. A higher octane type of name, but over time it will do fine.

Cyber Security problems are not going to go away, but is probably going to get much worse, whether it involves governments, large corporations, banks or terrorism. This space will continue to be strong. This company happens to be one of the stronger or higher growth type of names in the area. Growing at well over 40% on a long-term growth basis. On this kind of name, you are going to want to trade or hold for a long-term. Trading just below its 200 day moving average.

Provides enterprise and network security solutions. Unlike a lot of anti-hacking companies, they are more of an integrated company, where they provide services and solutions across the board. There have been a lot of recent high profile security breaches with governments and companies, with credit cards and information being leaked out. That is going to be a very big thing going forward. Security breaches will continue to move higher going into the future. One of the few companies delivering a 35%-40% growth rate, and still making very, very strong revenues in earnings. Since their IPO in 2012, they have met or beat analysts’ expectations on every single quarter. The stock dropped recently creating a good buying opportunity.

His model price is $45.18. It is coming back to 159.20 and the fundamental value is $45.18. If it goes to $148.48 he would be a seller. It looks like it is coming back to support at EBV +9. $202 is the street consensus, 29% upside.

A Canadian cyber security stock or ETF? He doesn’t know of any Canadian companies, and rather than using an ETF he would prefer an individual company like this one. ETF’s are going to include some names that are not necessarily 100% into cyber security. This is one that he is looking at very seriously. (See Top Picks.)

He has used it as a top pick. It is in the very timely network security area. Companies are having to spend a lot of money to protect their networks. They continue to grow their earnings. There is risk in a stock like this. Seasonally it is coming into a tough period. Technically it is fine, but there are some cracks in this market that are concerning him. You may choose to buy it cheaper in the fall.

Security is a very important theme in the market. There are a couple of themes that have big tailwinds right now. Certainly the Internet of things, i.e., connected devices to the Internet, which means it is a great thing for semiconductor and software companies. The big issue that a lot of companies have right now is security risk, which is an a bull market right now. Companies that can help mitigate that are doing really well. This company appears to be the winner in this space. Their most recent quarter had 55% revenue growth and beat the estimate by about 12%. They are seeing consistent increases in the estimates coming from analysts. It is expensive, but he feels the analysts are being too conservative with their estimates of earnings and revenue growth.

(Top Pick Aug 29/12, Down 33.31%) A disappointment for him. Grew service business, but we are seeing a shift away from infrastructure stocks. IT is a service rather than licensed hardware and software. Would not have expected this to affect them this quickly. Don’t be quick to sell it.