A Recent IPO In The Market's Hottest Sector

Genia Turanova's picture

Wednesday, August 28, 2019 - 12:00am

by Genia Turanova

Think fast: what's the largest U.S. company?

No, it's not Apple (Nasdaq: AAPL). Despite dominating the headlines, being almost universally beloved and trading within a few points of its all-time high, Apple does not sit at atop the market-capitalization list.

This honor currently belongs to Microsoft (Nasdaq: MSFT), a company whose imminent death because of the slowing PC market was predicted by more than one analyst more than once over the years. They were wrong. With a total market value that exceeds $1 trillion, MSFT is currently the king of the markets. 

Like Apple, MSFT trades within a spitting distance of the stock's all-time high. Over the past five years, while shares of AAPL more than doubled in value, the value of MSFT more than tripled. Yes, the PC market has slowed, thanks to the proliferation of smartphones and other mobile devices on the consumer side and growth in the cloud on the enterprise side. And yet, Microsoft is the largest company that trades in the United States.

What gives?


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The surge in Microsoft's share price over the past few years can be attributed to its timely pivot to the cloud. In the public cloud space, Microsoft is second only to Amazon (Nasdaq: AMZN). (By the way, Amazon is the third-largest U.S. public company.) Both Amazon and Microsoft make it possible for other companies to run their applications in the cloud. Last year, Amazon Web Services (AWS) grew 27% over 2017 to $15.5 billion -- which accounts for almost half of the cloud infrastructure's $32.4 billion in revenue. Microsoft accounted for about 15%. 

The Cloud (and Cloud Security) 
Data show that more and more mission-critical applications (like the ones that schedule flights for an airline, logs in a website or a phone sale for a retailer, or takes an online credit card application) are run in the cloud. A downtime here might be very costly.

Indeed, while businesses benefit from the cloud by saving money and streamlining operations, their growth in the cloud comes with challenges.

One of these challenges is security. The more business companies do in the cloud and the more they run business-critical applications there, the higher the need for security. Data, too, needs protecting.

If you have any doubt about the need to improve online and cloud security for major business, recall the late-July news of the huge Capital One security breach. About 14 years of credit card applications, from 2005 to 2019, were exposed, affecting 100 million people in the United States and about 6 million in Canada. Security measures implemented by Capital One, a bank and a major credit card issuer, were not sufficient, possibly outdated, and not strict enough to protect both its customers' data and the company's business.

In addition to data, modern businesses need to protect their networks -- and these networks get more and more complex for any company that does business in the cloud. As the number and intensity of cyber-attacks grow, so does the need to protect and defend companies' data and operations.

A Top Pick For Cybersecurity
As a company whose entire business is dedicated to making modern networks and their communications with the cloud more secure, I like Israel-based Tufin Software Technologies (NYSE: TUFN).

Tufin's offerings go to the very heart of the security issue: IT security policies and their execution. A company cannot run a secure business if its security policies, rules and practices are inadequate to monitor its information technology networks and resources, fail to recognize a threat, lag in evaluating a problem or are slow to respond to a newly discovered issue or an outright breach.

All the above include the must-haves for network security. These days, these issues are addressed by a set of network security policies and management tools. 

Tufin's products govern the ways and permissions for individuals, systems and applications to communicate with the cloud and within networks. The company's approach to these issues is via well-defined policy-based security automation. And this, in turn, enables its customers to drastically accelerate making complex network changes -- from days to minutes.

In other words, Tufin manages the decisions that determine how and what can communicate via a company's network. And because the company pioneered a policy-based, automated approach to security, it's unique among its security peers.

In addition to offering end-to-end automation of security changes, Tufin also offers a unified security policy and centralized control software. This is a novel approach -- and if it takes off, the company should be able to reach well beyond its core policy-management business (a $10 billion market), and even beyond the much larger $130-billion security market. It ultimately targets the area of info-tech operations management, the area of automation and configuration management, as well as policy and compliance.

But that's in the future. For now, this small company ($590 million in market cap) focuses its efforts in the $10-billion security policy management space. The progress that TUFN has made since 2005, the year it was founded, validates its approach. With 2,000 mainly blue-chip customers in 70 countries, TUFN is already getting the recognition its approach deserves.

Action To Take
TUFN went public just this April. After bidding the shares up some 60% after the April 11 IPO, traders turned to newer targets -- today, TRUN trades some 8% below its IPO levels. These sub-$20 levels are optimal for an entry point. This is an opportunity to buy a "hot" IPO at a good price and to start building a position in a company that has the potential to upend the security markets as we know them.

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Genia Turanova does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.