When you think of tech stocks, the phrase “recession-proof” doesn't usually come to mind. This is an industry that will be among the first to decline as concerns about an impending recession grow. After all, businesses and consumers often try to delay or cancel IT spending when they are focused on conserving cash.
However, the cybersecurity niche within technology is a bit of an anomaly. While not immune to fluctuations across the economy, this industry is increasingly being prioritized even as large companies cut spending in other areas.
However, not all cybersecurity professionals have what it takes to succeed in this competitive market. Let's take a closer look at some companies that stand out as potential winners. Especially two, palo alto networks (NASDAQ:PANW) and Octa (NASDAQ:OKTA)could be a good long-term buy and hold stock.
1. Palo Alto Networks
There's a lot to like about Palo Alto Networks, but Wall Street was disappointed by one key metric in its latest earnings report. The cybersecurity leader lowered its outlook for the fiscal year, with management now expecting revenue to increase 15% to 16% instead of the previously expected range of 18% to 19%. Naturally, after such a depressing update, the stock price falls.
However, Palo Alto Networks remains a strong company operating in a high-growth industry. Sales rose nearly 20% year-over-year in the most recent quarter, on top of a 26% surge in the same period last year. We find that businesses are still finding space in their budgets to deploy its comprehensive security solution platform. And the company maintained its forecast to generate very high non-GAAP margins of 27% this year. Adjusted free cash flow will still be close to 40% of sales. Finally, Palo Alto Networks is on track to make another year of profit on the revenue front.
These factors should support market-beating returns for shareholders willing to hold this volatile stock for over the next decade.
2. Octa
Okta stock has performed well in 2024 (up 17% so far), but the stock is still 63% below its 2021 pandemic peak. This situation presents a potentially lucrative opportunity for investors seeking exposure to the cybersecurity market.
Okta focused on the digital identity management niche market until it completed its acquisition of the Auth0 platform last year. The acquisition was fraught with headaches due to integration issues, but the company appears to have put those issues behind it. Revenue increased 19% year over year last quarter as companies aggressively spent on securing their workflows.
The software-as-a-service specialist currently doesn't have consistent profits, which is a huge blow to its stock price. But looking at cash flow trends can give you more confidence in your earnings potential. Okta generated $512 million in free cash flow last year, and its cash flow margin rose from 5% of sales to 23%.
Investors are expecting modest growth over the next year, with most Wall Street professionals expecting sales to rise about 10% to $2.5 billion. Consider taking advantage of the fact that investors are looking forward to faster growth from other software professionals. Okta appears poised to carve a solid market share position in the coming years, even as cash flow begins to turn positive into annual profits.
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Demitri Kalogeropoulos has a position in Octa. The Motley Fool has a position in Okta and Palo Alto Networks and recommends Okta and Palo Alto Networks. The Motley Fool has a disclosure policy.
“2 Top Cybersecurity Stocks to Buy and Hold for the Next 10 Years” was originally published by The Motley Fool
