Tech stocks aren't usually considered "recession-proof". This is because the industry is among the first to suffer when economic downturn fears rise. When trying to save money, businesses and individuals typically delay or cancel IT spending.
Tech's cybersecurity specialization is unusual. While not immune to economic changes, huge companies are prioritizing this business even as they cut investment elsewhere. Not all cybersecurity experts can succeed in this competitive environment. Let's examine a few promising candidates. Palo Alto Networks (NASDAQ: PANW) and Okta (NASDAQ: OKTA) could be good buy-and-hold stocks.
1. Palo Alto Networks Palo Alto Networks has a lot to admire, but Wall Street was disappointed by one important measure in its recent earnings report. The cybersecurity giant decreased its fiscal year sales prediction to 15% to 16% from 18% to 19%. Understandably, the stock fell after that disappointing update.
Palo Alto Networks remains strong in a fast-growing industry. Sales grew over 20% year over year in the latest quarter after a 26% increase the year before. Enterprises are still budgeting for its full security solutions platform. The company maintained its 27% non-GAAP profit margin target for this year. Adjusted free cash flow will remain near 40% of revenues. Palo Alto Networks is looking forward to another profitable year.
2. Okta Investors who keep this risky stock for a decade or more should see market-beating returns. While Okta stock is up 17% in 2024, it is still 63% below its 2021 epidemic top. Investors wanting cybersecurity market exposure may benefit from such situation.
Okta focused on digital identity management before acquiring Auth0 last year. That takeover was plagued by integration concerns, but the corporation appears to have moved on. Enterprises spent 19% more on process protection last quarter, driving sales.
The software-as-a-service specialist isn't making consistent earnings, hurting the stock. Looking at cash flow trends will boost your confidence in its earnings prospects. Okta's cash flow margin rose from 5% to 23% last year, generating $512 million in free cash flow.
Most Wall Street analysts predict sales to jump 10% to $2.5 billion this year. Capitalize on investors' impatience for faster software specialized growth. Okta appears poised to grow on its strong market share position in the next years as its cash flow turns into positive annual earnings.
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