As long-term investors, if we can identify a winning structural trend then it pays to then locate the winners (leaders) within that space.
That’s because if you can identify winning stocks, it’s as simple as buying shares and sitting on them for years.
Instead of dealing with the stresses of trading in and out of markets, you can just let the wonders of compounding work.
So where are these so-called “megatrends”? Amid the Covid-19 pandemic, we have been forced to hunker down and “work from home”.
Inevitably, that has created opportunities for hackers to take advantage of weak IT security systems within large enterprises.
So, with that in mind, here are two cybersecurity stocks that long-term investors can buy and hold forever.
Crowdstrike Holdings Inc (NASDAQ: CRWD) is a cloud-native, end-point security platform provider that services many of the biggest companies in the world.
Its flagship “Falcon” platform enables enterprises to be better-protected against malicious attacks. How it does this is via machine-learning (ML) and AI – analysing up to a trillion data points each day on attempted breaches and then using that to strengthen its own proprietary defence systems.
As a result, Crowdstrike’s business has flourished. In its most recent second-quarter fiscal year (FY) 2022 earnings the company posted a whopping 81% year-on-year growth of subscription customers.
Crowdstrike’s subscription customer base now numbers 13,080 and includes 63 of the Fortune 100 and 14 of the top 20 banks.
Not only that but Crowdstrike is a leader in its space, with a 12% market share of the endpoint security market (see below).
For investors, that’s a positive sign that this market-leading cybersecurity provider will keep on growing its sizeable business.
Second is Cloudflare (NYSE: NET), a web infrastructure and website security firm that operates in the fast-growing “edge computing” space.
Essentially Cloudflare is an integrated global cloud platform, with security forming one part of its wide-ranging offering.
It also provides networks services and application services (including content delivery networks or CDNs).
Cloudflare operates a massive scale and has over 126,000 paying customers while its platform helps to block 87 billion cyber threats per day.
Perhaps one of the biggest signs that Cloudflare is providing a service that its customers like is the fact that its dollar-based net retention rate (DBNRR) was a solid 124% in its latest quarter (see below).
Source: Cloudflare Q2 2021 investor presentation
Effectively, what that means is that even if Cloudflare didn’t take on any new customers in its most recent quarter, its existing customers would have still spent 24% more with the company.
While investors may be put off by recent volatility in markets, whether interest rates are higher or not will not impact the megatrend of cybersecurity much.
In that sense, both Crowdstrike and Cloudflare are addressing a massive need for cybersecurity solutions, whether that be standalone dedicated solutions or as a comprehensive cloud platform package.
To ensure we can benefit from the tailwinds of megatrends, we have to remember to buy into the leaders as these companies are likely to keep on winning.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Crowdstrike Holdings Inc.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.