Congress Holds Hearings, You Grab Profits

As the stock market melt-up continues, another political sideshow is setting up one of our favorite sectors for explosive fourth-quarter gains.

Congress kicked off the fourth quarter by trotting out the victim of one of the biggest corporate hacks in recent memory.

Equifax is in the political hot seat this month as Congress forced its former CEO to explain the failures that led to massive data breaches. Now that sensitive customer data are in the hands of cybercriminals, grandstanding politicians demand answers!

The story of this high-profile hack changes almost every week. When Equifax first revealed the details of its hack in September, management claimed 140 million customers were potentially affected. Now they’re saying more than 145 million people were caught up in the hack.

Former CEO Richard Smith told the House committee that the hack was the result of human error and technological error.

What resulted was exposing nearly half of Americans to the perils of identity theft.

These events are a grim reminder of just how vulnerable our information is in the digital age. Cybercriminals are everywhere. And they’re becoming more savvy by the day.

Individuals and corporations are scrambling to protect their most sensitive information. But as we see almost every week, they’re woefully behind the curve.

The consequences are clear. Hundreds of millions of people are getting their personal data swiped. No information is as secure as it seems, and most corporations simply aren’t doing enough when it comes to protecting your data. That’s the reality of the digital world in which we now live.

That’s terrible news for the millions affected by the data breaches we’ve witnessed over the past few years.

But there are a few select companies trying to do something about it. What we’re witnessing right now is a generational opportunity for the companies that make their money protecting our identities.

From the very beginning, I told you cybersecurity will become one of the most lucrative plays of the decade. Now, the market’s finally waking up this powerful trend.

Unlike the broad market, cybersecurity plays haven’t offered investors a low volatility melt-up. We’ve had to work hard for our gains in this sector. Over the summer, the PureFunds ISE Cyber Security ETF (NYSE:HACK) quickly approached correction territory as the fund dropped nearly 10% in just two months.

But as we noted last month, the sector bottomed out in August and is once again shaking off recent weakness and moving higher. It’s now quietly outperforming the S&P 500 over the past six weeks.

As always, price leads the news. Even before the Equifax story broke, cybersecurity stocks had already demonstrated that a change in trend was in its early stages. Many of these stocks failed to keep pace with the major averages during the first half of the year. In fact, some of the most recognizable names in the industry were trapped in nasty downtrends when the market was weak in 2015 and early 2016.

But change is in the air. The cybersecurity revolution is here. There’s plenty of money to be made as the market wakes up to this powerful trend…

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning