How to Profit From Catastrophic Software Hacks By Sean Michael Cummings, analyst, True Wealth
The burglar shoves her handgun in the face of a hostess. Trembling, the elderly employee empties the register. Sirens wail in the distance... and the robber gets spooked. She fires at an unlucky bystander before dashing out to a getaway car. This might sound like a violent crime – but the only laws broken were in cyberspace. This sequence I'm describing came from a tech demo of the video game Grand Theft Auto VI. It was leaked to the Internet this weekend, amid 90 other development videos of the unreleased game. It's only one of a growing list of hacks in the last few months. Other stings recently occurred on social media titan TikTok, media website Plex, and password manager LastPass. If you feel like cybercrime is everywhere lately, you're right – and this problem isn't going away anytime soon. But what you might not expect is that hacks can lead to opportunities for investors. Let me explain... Brian Gorenc is more worried than ever. He's the director of vulnerability research at cybersecurity leader Trend Micro. He also runs the Zero Day Initiative ("ZDI"), a program that encourages "good guy" hackers to identify security flaws so that companies can patch them up. At a cybersecurity conference this August, Brian sounded the alarm: The state of data security has never looked shakier. "We've never been more concerned about the state of security patches across the industry," he said. "Vendors that release inadequate patches... are costing their customers significant time and money and adding unnecessary business risk." His warning was right on the money. Hacks are picking up speed. They're costing companies money and more... And they're slamming stocks as well. Grand Theft Auto's parent, Take-Two Interactive (TTWO), opened 2% lower this Monday after its big leak was made public. Meanwhile, shares of ride-hailing giant Uber Technologies (UBER) opened 6.5% lower on Friday after a hack came to light on Thursday – possibly carried out by the same attacker. There is a silver lining, though. Historically, security breaches like these are great buying opportunities for investors. To test this, I looked at 18 of the highest-profile hacks of public companies dating back to 2007. For each, I tested to see what happened a week, three months, and six months after a hack was announced. And the results are clear... One week after disclosure, a company's stock dips about 6% on average. But afterward, the stock quickly bounces back... If you buy one week after a hack disclosure and hold for three months, you gain 7% on average – slightly outperforming the market. Over six months, those gains jump to an average of 20%. That doubles a typical year of "buy and hold" for the stock market – and in half the time. Plus, 72% of the companies were winners over six months. Now, I'm not recommending you buy UBER or TTWO today. But if you've been interested in these companies in the past, now might be a good time to scoop up some shares. And keep your eyes peeled for setups like this in the future. Data breaches are unfortunate, but they can still set you up to profit... You just have to keep a cool head. Good investing, Sean Michael Cummings Further Reading "We've seen the price of progress as our digital world expands," C. Scott Garliss writes. "But these new challenges also mean the cybersecurity business is likely to take off in a big way." Scott shares one way to profit as spending soars in this industry... Get the full story here. Wall Street is slow to catch on to comeback stories. Investors sell first and ask questions later. That's what happened to one stock when a digital darling took over during the pandemic – until the pendulum of sentiment reversed... Read more here. |
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