Tag Archives: seeking-alpha

FireEye Earnings Illustrate Why You’re More Secure With HACK

FEYE showed why owning a single cyber security stock is high risk. FEYE drug down other cyber security focused stocks. This performance supports the notion that owning HACK is a much better way to gain exposure to this industry. I am a big fan of cybersecurity companies and the potential that these stocks have as a unit to become extremely valuable over time. CyberArk Software (NASDAQ: CYBR ) is one of my favorites. Palo Alto Networks (NYSE: PANW ) is a trend-setter, and even FireEye (NASDAQ: FEYE ) is still a great company after its disappointing quarter. However, I have discussed the topic of cybersecurity stocks to members of TTS on a regular basis, and have explained that while the companies may be good, the stocks are very expensive and risky due to lofty valuations and high expectations. For this reason, there’s only one good way to invest in a cybersecurity stock. That way is to own an ETF, a basket of cybersecurity stocks rather than just one alone. My personal favorite is PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ). The reason it is important to own ETFs in these extremely volatile and unpredictable industries like cybersecurity is to protect from sudden downside. FireEye investors know all too well this risk, with FEYE down 24% after reporting earnings. FireEye’s earnings weren’t bad. The company grew revenue 45% and its margins surged due to operating expenses rising just 14%, far slower than revenue growth. However, the problem for momentum stocks like FEYE is that every metric in its earnings report is heavily scrutinized, and has the potential to move the stock in a big way. These metrics are important to maintain the lofty valuation that has been given to such stocks. Therefore, investors showed quite a bit of fear when FireEye reported that billings grew just 28% year-over-year and that its product revenue rose only 24%. These are both signs that future subscription growth could decelerate, as could overall revenue growth. Not to mention, its conservative outlook didn’t help matters much. Nevertheless, FireEye’s earnings performance and its stock collapse dragged competitors down with it. PANW fell 4%, Rapid7 (NASDAQ: RPD ) stock fell 5%, and Fortinet (NASDAQ: FTNT ) also fell 5% in response. However, those losses weren’t nearly as bad as FEYE, and had investors owned PANW, RPD, or FTNT they would still have exposure to the growth of cybersecurity without the big, portfolio changing drop that took place in FEYE on Thursday. As previously said, the answer is an ETF, specifically HACK. What I like so much about HACK is that it’s an ETF that tracks the performance of companies across the globe that are service providers for cyber security companies or provide cyber security services. In other words, all of the components have a connection to cybersecurity. Furthermore, no stock’s weight is greater than 5% of the ETF. With that said, HACK tracks PANW, FEYE, RPD, and Proofpoint (NASDAQ: PFPT ) among others, but it also tracks Juniper (NYSE: JNPR ), Cisco (NASDAQ: CSCO ), and providers of cloud security or cloud storage & security. Collectively, HACK fell 2.7% on a day when cybersecurity focused stocks fell far more, and FEYE lost a quarter of its stock value. Therefore, HACK investors get the exposure to cybersecurity and security in general without the risk that comes with owning one particular stock in this arena. With HACK trading higher by 7% over the last 12 months, it has greatly outperformed the 3.8% gains in the S&P 500. Moreover, spending on IT security is expected to grow at a compound annualized rate of 7% until becoming a $101 billion market in 2018, and the global cyber security market is figured to grow at a compound annualized rate of nearly 10%, exceeding $170 billion by 2020 according to Gartner. These industries are growing far faster than GDP, and suggests that HACK will continue to outperform major indexes in the years ahead.

SDOG: Great Yields With Reasonable Sector Allocations

Summary SDOG offers an exceptional dividend yield of 3.54%. The expense ratio is a bit too high for my tastes. The sector allocation is solid as either a first allocation or a secondary allocation in the dividend growth portfolio. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve the risk adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs One of the funds that I’m researching is the ALPS Sector Dividend Dogs ETF (NYSEARCA: SDOG ). I’ll be performing a substantial portion of my analysis along the lines of modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. Expenses The expense ratio is a .40%. This is too high for my tastes. Dividend Yield The dividend yield is currently running 3.54%. For the retiree or income focused investor that is looking for strong dividend yields, the yield on this fund is excellent. Holdings I put grabbed the following chart to demonstrate the weight of the top several holdings: (click to enlarge) I would ignore the very top weighting in the chart because I’m not convinced that it is a long term location. It may simply be an artifact of the time when I grabbed the chart. The individual holdings have a ton of great dividend champions. General Electric (NYSE: GE ) has been a disappointment to shareholders over the last several years, but the dividend yield is still very high and it isn’t surprising to see it included in dividend indexes. The next thing that I like to see is the presence of both Altria Group (NYSE: MO ) and Phillip Morris (NYSE: PM ). This portfolio is loading up on the sin stocks. Should we consider GameStop (NYSE: GME ) a sin stock? I think the presence of so many video games may be reducing the productivity of younger people as much as any other single factor in the economy. If we were to go all the way down the bottom of the list we would even see Freeport-McMoRan (NYSE: FCX ) on the list which is a little interesting after they had a massive dividend cut. Of course, the price also fell far enough that the dividend yield came back 1.66%. That isn’t strong, but it does represent the exceptional loss shareholders have endured. Since I’ve got some Freeport-McMoRan in my portfolio, I’m well acquainted with the pain other shareholders have endured. I’m a little surprised they aren’t making their play on BHP Billiton (NYSE: BHP ) or Rio Tinto (NYSE: RIO ) for substantially stronger dividend income if they intend to hold stocks in the mining sector as a source of dividend income. Sectors This is a great sector allocation. They went with a fairly even weighting strategy. Since I like going overweight on consumer staples and utilities, I would see this as being ideal for a secondary dividend ETF allocation in the portfolio once the investor is getting overweight on those sectors. As a secondary dividend ETF this is offering excellent sector diversification to go with the very strong yield. Even consider the fund as a first allocation, the positions are still pretty reasonable. I would prefer to use a lower allocation to the basic materials sector, but perhaps that is just the voice of an investor that has been burned by Freeport-McMoRan. For the investor that believes mining materials will have a price recovery within the next few years, this heavy allocation would be ideal. Volatility The ETF has almost perfectly matched the S&P 500 for volatility since inception. Using returns from July 2012 to the present the annualized volatility for the fund is 12.3% compared to 12.5% for the S&P 500. The max drawdown has been a little higher at 13.6% compared to 11.9%. I wonder how much of that was due to the weight of the materials sector. Conclusion This is a pretty good ETF if investors are able to look past the dividend yield. I find a couple of the choices strange for generating dividend income, but the portfolio works as a whole and the relatively even allocation looks a reasonable choice that makes it easier to slip SDOG into a portfolio that already has some major positions filled.