Cybersecurity Stocks: Four Ways to Play the "Flame" Attack on Iran

Iran loves to rattle its saber-especially when it comes to Israel.

But the country that would like to wipe Israel off the map now finds itself the target of a very different kind of war.

On the frontlines of cyberspace, Iran has become the victim of another massive attack on its computer networks.

In the wake of the Stuxnet attack, the Flame virusunleashed on Iran is one of the worst pieces of malware ever to hit cyberspace.

The Flame virus is not just nasty, it's also very smart.

It was written to spy on a user's infected system and steal data. This includes documents, recorded conversations and even keystrokes.

Then it throws open a back door that allows hackers to tweak the code giving Flame even more ways to wreak havoc.

Clearly, news of the Flame attack comes at a key moment.

Rising tensions between the U.S. and Iran over its nuclear program have left the region under the threat of a wider conventional war.

In the background is the Israeli wild card. Israel has taken key political actions to ensure it's ready if it needs to attack Iran.

Flame's success is that it helps to keep a lid on this brewing powder keg.

In short, it is war by other means-even though Israel and the U.S. both deny they are behind the Flame attacks.

Yet, there's no question the Flame episode is part a major global trend that has put cybersecurity stocks back in the public eye.

And in a moment I'll show you four ways to invest in this growing field-pegged at about $65 billion.

But first, I want to make sure you have the correct context...

The Growing Menace in CyberspaceThe truth is that the U.S. is all too often on the receiving end of cyberattacks.

Hackers from around the world try to steal or destroy sensitive defense and financial data hundreds of times a day.

Not only that, the Pentagon maintains an active Cyber Command. The unit trains around the clock to keep the nation prepared to defend against hacks.

And for good reason...

There's just no question that in what I call the Era of Radical Change, a "Cyber Cold War" is a fact of life.

You see, rogue nations and freelance hackers can easily afford to create and launch weapons of mass computer destruction.

Compared to the cost of a fighter jet or battleship, writing computer code is practically free.

In the case of Iran, this is the second major cyberattack in the past two years. In 2010, the Stuxnet worm disabled machinery for several months that Iran needs for its nuclear program.

But Flame puts Stuxnet to shame. After all, the file itself is 20 times larger and far more complex.

It can turn a computer into a wireless vacuum cleaner. It sucks up names and phone numbers from nearby devices and transfers them back to the attacker's server.

Though Iran is not the only target, Flame has mostly focused on the Middle East. Other countries fending off Flame include Egypt, Israel, Lebanon, Saudi Arabia, Sudan and Syria.

In all, the Flame virus has attacked nearly 600 systems.

Four Ways to Invest in Cybersecurity Stocks Clearly, news like this means investors need to keep an eye on cybersecurity stocks.

Several have gotten slammed in the market's recent retreat but offer good long-term opportunities.

Take the case of Fortinet, Inc. (Nasdaq: FTNT).

Trading at about $20, the stock is off more than 20% in the past month. And the price may get even better because tech stocks have come under pressure of late.

With a market cap of $3.2 billion, it has a 14% profit margin and earns 19% on equity. It has $428 million in cash and no debt.

Fast-growing Sourcefire, Inc. (Nasdaq: FIRE) also has gotten slammed.

It's down more than 12% in the past month. Yet FIRE has $150 million in cash and no debt. However, Sourcefire can't match Fortinet's solid margins.

With a market cap of about $1.5 billion, Sourcefire returns just 3% on equity. But the company does have 2,500 clients in 180 countries and boasts 41 pending or actual patents.

Shares of Check Point Software Technologies Ltd. (Nasdaq: CHKP) also got caught in the May rout, ending the month off by about 13%. But the balance sheet looks great.

Check Point has a market cap of about $10.4 billion. Selling at about $50, it trades at just 14 times forward earnings. It has an operating profit margin of more than 50 percent with $1.4 billion in cash and no debt.

Then there is small cap KEYW Holding Corp. (Nasdaq: KEYW). It trades at just $9. Though it's off slightly in the past 30 days, KEYW has beaten its larger rivals over the past three months.

For the quarter, KEYW returned 29% to shareholders compared with 11.5% for FIRE and declines of 15% for CHKP and 26% for FTNT.

The point is that we have millions of computers around the world connected to either the Web or private networks. For hackers, these computer networks are a target-rich landscape.

That means cybersecurity will remain an active field for investors for at least the next several years.

And to help you stay abreast these growing cyber threats and other cutting-edge high tech, I recently launched the Era of Radical Change.

It is a free newsletter that will show you how to profit from the most important trends reshaping the world around us.

I'm referring to things like:

A mini robot that charges your cell phone just by hovering over it.

How a new app can turn your smart phone into a bomb detector and send an alert to the police.

And an exotic new material that's the thickness of a single atom. Someday, it will give us TV screens that are slimmer than a sheet of paper.

So, if you want to find a way to profit from the next generation of tech breakthroughs, the Era of Radical Change is a great place to start.

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