Protecting States From a 21st Century “State of Emergency”

Did you hear that the governors of Texas and Louisiana have both declared states of emergency?

These declarations have nothing to do with hurricanes or floods or other natural disasters. Instead, Texas and Louisiana are experiencing a very different situation…one that can still be devastating and costly to the affected area: a cyberattack on local governments.

Last Friday in Texas, government workers in 22 towns arrived to find that hackers had locked them out of their I.T. systems. Across all the local governments, a total of $2.5 million was being demanded in ransom before the systems would be released from the anonymous cybercriminal’s grasp.

In response, Texas Governor Greg Abbott directed his state to deploy a “Level 2 Escalated Response,” the kind of move that enables access to emergency resources when local governments are overwhelmed. Also coming to the 22 towns’ aid are FEMA, the Department of Homeland Security, the FBI, and even the National Guard.

Louisiana got hit with its own “ransomware” attack in late July. After computer systems were breached in three school districts – in the parishes of Oachita, Morehouse and Sabine – Louisiana Governor Bel Edwards declared a state of emergency in which the FBI had to come to their aid as well. According to the K-12 Cyber Security Resource Center, this type of attack is increasingly common for schools. That institution reports more than 500 incidents just since January 2016.

If this is the first you’ve heard of these hacks — it’s probably because Texas officials in particular are trying to keep the names of the affected areas out of the press. Besides their potential embarrassment, keeping this under wraps may help avoid copycat attacks.

However, panic is starting to spread anyway. In North Texas, Grayson County and one of its major cities, Denison, both preemptively took tech services offline (even though they say they were unaffected by last Friday’s attack).

During that time, you can’t pay by credit card at city hall, do any sort of e-filing, or even receive a birth record or marriage license. And staffers cannot access their email at all.

Taking everything offline may be inconvenient, but it keeps government workers from falling for the hackers’ tricks!

According to the CISA, this type of “malicious software, or malware… typically spreads through phishing emails or by unknowingly visiting an infected website.” If the victim takes the bait, their personal information gets stolen, and the thief tries to extort them for thousands or even millions of dollars.

Economically, cybercrime has a big impact:

“Digging out” from a cyberattack can be much more expensive than the actual ransom demanded. Here in Baltimore, for example, the city government got hit with a ransomware attack in May…and the recovery was pegged at $18 million.

And investing in cybersecurity to keep from being the next victim…well, that’s not cheap, either. For example, the state of California spent nearly $10 million “to strengthen the state’s information technology security operations across various departments” in 2017-2018 alone.

All this, naturally, creates vast opportunity for companies like the #1 cybersecurity stock I recommend in my investing services.

But it’s not just governments that are going to become big spenders on cybersecurity. Corporations will, too. And not always the ones you’d expect!

For example, Honeywell (HON) is a good old industrial stock that’s been selling HVAC parts for over 130 years.

But these days, when people buy Honeywell’s famous thermostats, they want “smart” ones.

In fact, people want whole “smart buildings,” where systems like lights and electricity in addition to the thermostat are all controlled remotely. “Remotely” as in “connected to the internet”…and as we’ve seen today – anything on the internet really needs to be protected.

This is the “Internet of Things,” and Honeywell just invested big through its Forge platform…which includes a custom suite of Honeywell Forge Cybersecurity tools.

Let’s take a look at how things are working out for Honeywell these days, by running HON through my Portfolio Grader:

Operating margins are looking quite strong, perhaps as a result of new Honeywell technology creating efficiencies, though sales growth and earnings momentum are both currently lacking.

But one factor that certainly stands out is HON’s Quantitative Grade. The “A” rating there suggests that big institutional players on Wall Street are favoring the stock. When the “smart money” makes big moves like that, it creates plenty of positive momentum in itself. All in all, HON is a B-rated “Buy” in my Portfolio Grader.

This is just one example. Just about every company will need to step up their cybersecurity, if they want to survive in this new world of data breaches and “dark web” hackers.

That’s one reason that BlackBerry (BB) – yes, the manufacturer of the “original smart phones” from the 1990s – is now rebranding itself as a cybersecurity company! BlackBerry just announced it will acquire Cylance, which provides cybersecurity solutions powered by artificial intelligence, particularly for connected cars and, eventually, self-driving cars. The sale amounts to $1.4 billion in cash. That’s a pretty penny for BlackBerry, currently a $3.8 billion company.

Globally, Gartner forecasts security spending to be more than $124 billion just this year. That number is set to double to $248 billion by 2023. And after that, I see it going to $1 trillion. For its part, the Trump administration requested about $11 billion for cybersecurity in its 2020 budget.

So, rather than an individual company that uses cybersecurity solutions, I’d prefer to invest in a pure play on cybersecurity.

The One AI Company Set to Corner the Booming Cybersecurity Industry

My favorite cybersecurity play is a company that has developed a cunning detection system that can analyze past criminal behavior and predict the next attack, using pattern recognition and machine learning — in a word, artificial intelligence (AI).

Founded in the early 2000s, right at the dawn of the “Internet Age,” it’s become a leader in the field of cybersecurity.

Not only is this company helping protect Microsoft Azure and Amazon Web Services…its other clients include Sprint (S), Leidos (LDOS), and even the Steelers and Boston Red Sox. And its revenues have surged from just $2 million in 2002 to $1.8 billion today.

With its cutting-edge AI system, I believe this company is going to be grabbing a large slice of this potential $1 trillion market. The company not only has strong earnings growth — it gets a solid rating for its Quantitative Grade as well. So, the stock is enjoying enough buying pressure to deliver further profits to its investors in the future.

So, without further ado, click here for my latest free briefing with a bold market prediction for 2019. When you do, you’ll get the chance to hear my #1 cybersecurity investment for the AI revolution. You’ll see how to get a free copy of my special report, The One AI Company Set to Corner the Booming Cybersecurity Industry, and all the rest of my Platinum Growth investing library.

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