Computer security stocks climb as attacks continue
Following a series of hacker attacks against several leading Web sites, shares of companies that sell security products are rising.
Despite a broad decline in the markets, several stocks gained ground, including Check Point Software, VeriSign, Entrust Technologies, ISS Group and Axent Technologies.
But in an apparent case of irrational exuberance by investors, not all of these companies produce products that can help prevent the type of attacks that have plagued the Web for the past three days.
The sites were basically under siege by a flood of bogus traffic, creating a situation similar to several people dialing a single phone number repeatedly so no other calls can get through.
"We're seeing a knee-jerk reaction to buy all security companies. As soon as people do the analysis, they will realize these companies can't solve the problem," said Nicole Schmidt, an analyst at Josephthal & Co.
She noted that a lot of the security companies deal with firewall issues, acting as traffic monitors that keep intruders out of a business' network. But the software does not screen out people from a company's public Web site, which is designed to be accessible.
ISS Group, however, does produce software that can help detect and defend against a "denial of service" attack
James Preissler, an analyst with PaineWebber, said that some of the security companies could have prevented the hackers from breaking into a company's firewall to hijack their servers. Those hijacked servers were used as unwitting accomplices in the attacks--enlisted to help deluge the targeted sites with requests for data.
"Check Point could have protected those computers from being hijacked," Preissler said.
At today's close, VeriSign was up $5.28, or about 3 percent, to $194.81; Check Point climbed $7.94, or about 8 percent, to $148; Entrust rose $6.81, or about 11 percent, to $70.63; ISS Group was up $7.88, or about 11 percent, to $81.75; and Axent added $5, or about 22 percent, to reach $28.25.
Although these security companies received a pop in their share prices today, analysts noted that shares have already had a good run.
"This sector has performed phenomenally well. It's been on fire for the
last 10 months," Josephthal's Schmidt said.
Check Point was trading at about $13 in April. VeriSign has jumped from about $39 during that time period, and Axent Technologies has climbed from $8 last spring.
As more companies get on the Internet, they're snapping up everything from antivirus to encryption software.
"There are so many different security components, with the Internet driving the growth of security companies," said Kama Krishna, an analyst at Sands Brothers & Co. "There are a lot of changes happening with the convergence of voice, video and data and the explosion in networking technology."
He added that the growth in e-commerce companies is also driving the sector's boom.
"If you talk about e-commerce, you are going to have to talk about security--they go hand in hand," Krishna said.