Phishing for a Good Investment

For What It's Worth -

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Happy Thursday,

This may be one of the few newsletters that will hit your inbox this week sans dispatches from a certain Miami courthouse. (But we will give a shoutout to the young activists sitting in a Montana courtroom, standing up for their right to a healthy, livable climate.)

So, without further ado, here’s your weekly dose of economic and market news for values-aligned investors:

  • 🧊 At least something’s cooling off: While people around the globe brace for a heat-wave summer, cooling inflation is taking some pressure off American consumers. The consumer price index rose 4% in May from a year earlier, the lowest annual level in two years. It’s enough of a slowdown that the Federal Reserve opted to forgo another interest rate hike at its meeting this week. The Fed “paused” its campaign to raise interest rates, leaving the benchmark rate steady (between 5% and 5.25%) after ten increases while signaling that we should all remain on our toes as they remain committed to fighting inflation.
  • ⌚The economy takes a licking and keeps on ticking: That’s according to Axios, which says we’re in a “Timex economy,” like the watches of these retro commercials. Despite much anxiety about a faltering US economy over the last 18 months, signs of resilience abound — like the fact that the S&P 500 entered a bull market last week. Experts say “bumps and pain” may lie ahead, but hopefully, that resilience will stick.

Also this week: With hacking and ransomware attacks on the rise, we’re spotlighting companies that are fighting the battle against cybercriminals (see below for the story). We hope you have a fantastic weekend celebrating Father’s Day and Juneteenth!

News you can use

  • The fashion industry still has much to do on the sustainability front, according to the latest Circular Fashion Index from consulting firm Kearney. As Axios reports, many apparel makers are still pushing “more and more product into the market — and incinerating unsold inventory rather than giving it a new life.” However, the report calls out several notable exceptions, including Patagonia, Levi’s, The North Face (owned by VF Corporation), OVS, Gucci, Madewell, Coach, Esprit, Lululemon Athletica, and Lindex
  • More companies are going public this year, signaling a potential end to the drought in the initial public offering market. Data from Renaissance Capital shows that 44 US IPOs have raised $7.3 billion so far this year, putting the market on a clear track to surpass the $7.7 billion raised in IPOs last year.
  • Shares in green hydrogen firm Plug Power jumped this week after it projected strong revenue for 2023 and unveiled new deals. Plug Power is providing electrolyzers for the first green hydrogen production facility for heavy-duty trucks in Southern California. It also introduced a portable hydrogen refueler, which it claims is a third of the cost of a permanent fueling station and “levels the playing field with battery electric vehicles.”

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions, and so you have useful resources at your fingertips, here are a few links to resources and past stories relevant in these turbulent times:

Plenty of phishing in the sea

If you’ve ever failed your IT security team’s test and clicked on a link to buy tickets to a sold-out Taylor Swift concert or claim a free holiday in Bali, you’ve learned an (embarrassing) lesson in the growing issue of cybercrime (and can join many on the FWIW team who have suffered similar embarrassment). Whether it’s swiping on potential partners, making payments, or remote working, most aspects of our lives are now digitalized and linked to the internet in some way. Vital services and critical infrastructure like transportation, healthcare, pipelines, supply chains, and power grids are all also online, making them vulnerable to bad actors in any part of the world.

Cybersecurity companies are tasked with protecting our networks, devices, and data from hackers seeking ransoms, confidential information, or simply chaos, and because of these widespread threats, they’ve never had a more active market for their services and tools. Many of these stocks have had outstanding rallies in 2023 during the broader tech recovery. So what should you know about this sector, and what do experts tell us on how to back these companies with investments? Keep reading to find out.

Growth potential with a growing problem

We’ve come a long way since the term “computer virus” was coined in the 1980s, with criminals getting more sophisticated each year. Here are some sobering stats about the current onslaught:

  • Organizations will spend $219 billion on cybersecurity in 2023 and $300 billion in 2026, per IDC. McKinsey estimates this figure could reach $2 trillion in the future as the attacks and threats multiply.
  • Surveys show cyberattacks are the most commonly cited risk by US executives, and cybersecurity is a top area of increased investment this year.
  • US cyber insurance premiums climbed 50% in 2022, per a study cited by Bloomberg.
  • Encryption and cybersecurity are expected to be among the biggest drivers of job growth in the next five years, per the World Economic Forum, along with big data analytics, climate change, and environmental management tech.

In recent years, Russia’s invasion of Ukraine and US tensions with China have prompted concerns of cyberattacks as a warfare tactic. The exploding interest in artificial intelligence (AI) is also putting the sector in focus and driving shares higher. Experts say we’ve only scratched the surface of what AI is capable of, but the technology can already write malware code, script phishing emails, and produce “deepfakes” good enough to convince people to transfer money. In his warning about the “existential risk” posed by AI, former Google CEO Eric Schmidt said AI systems will be able to find security weaknesses in software reasonably soon.

If the demand for cybersecurity continues to grow as expected, it could benefit many stocks in the area. Companies are under serious pressure from users, investors, and insurers to act responsibly and put the best safeguards in place. Those that fall victim to an attack can see their reputations and share prices plummet, as was the case with SolarWinds in December 2020. That’s why most ESG (environmental, social, governance) rating providers now incorporate cybersecurity in their frameworks as a “governance” factor, and Forbes recently published its first-ever list of America’s Most Cybersecure Companies. Topping the Forbes ranking are Intel, Western Alliance Bancorp, Virtusa, Palantir Technologies, and MetLife.

How do I invest in cybersecurity?

As long-time FWIW readers know, we do not provide specific investment advice, and when discussing sectors like cybersecurity, we try to provide you with the information you need to kick off your own research before making any investment decisions. Based on the areas they work in, experts like to break the cybersecurity market into two types of firms.

Financial experts note that a broader, more international approach would involve buying one of the many exchange-traded funds (ETFs) focused on this theme, like the First Trust NASDAQ Cybersecurity ETF (CIBR), Global X Cybersecurity ETF (BUG), iShares Cybersecurity & Tech ETF (IHAK), and the ETFMG Prime Cyber Security ETF (HACK). A top performer in this category in 2023 is the WisdomTree Cybersecurity Fund (WCBR), which has delivered returns over a whopping 30%, more than double the broader market (S&P 500).

Before you go -

Beyoncé can now add hiking inflation in Sweden to her many achievements.

** FWIW team members own shares of Boeing, Levi’s, Lululemon, MetLife, and Microsoft.

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