Brief Breakdown: First Trust Nasdaq Cybersecurity ETF (Ticker: $CIBR)
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Company Description and Qualitative Analysis
The First Trust Nasdaq Cybersecurity ETF $CIBR seeks to correspond generally to the equity index called Nasdaq CTA Cybersecurity Index. The companies in this ETF are involved in building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices in order to provide protection of the integrity of data and network operations. Every company is classified as a cybersecurity company by the Consumer Technology Association (CTA), market cap of at least $250 million, minimum three-month average daily dollar trading volume of $1 million and a minimum free float of 20%.

Quantitative Analysis
At the time of this writing (6/19/2022), CIBR is trading at $54.31 with a 52 week range of $38.08 - $56.58. The top 10 holdings of CIBR are CrowdStrike Holdings at 6.72%, Cisco Systems, Inc. at 6.31%, Palo Alto Networks, Inc. at 6.20%, Zscaler, Inc. at 6.18%, Cloudflare, Inc. at 4.82%, Okta Inc. at 3.26%, SentinelOne, Inc. at 3.21%, Thales S.A. at 3.17%, Check Point Software Technologies Ltd at 3.13%, and Booz Allen Hamilton Holding Corporation at 3.10%. This financial analysis was done using (sign up using our promo code GCI to get one month free here). You can view CIBR holdings here.

Bullish Thesis
Here are three points to support the bullish thesis updates:
  • Growing Industry: Overall the cybersecurity industry is growing rapidly as more devices come online and become “smart”. This industry is growing and having the ability to get broad exposure may be something that could be advantageous. Normally, I like to try to give detailed descriptions but I feel the projected growth shown below speaks for itself.

  • Necessity: As long as devices are connected to the internet and businesses are connected in multiple cities and countries, cybersecurity will be needed. There will always be attempts to hack to get private information and into various devices. This industry will continue to grow as highlighted above and there seems like there is no way to get around the need for cybersecurity services.

  • Increasing Online Businesses: More and more businesses are going online and conducting business and storing data online. With online aspects of a business comes the need for protection and with the COVID push to get more businesses online, more businesses will need cybersecurity solutions. This is similar to the growth and necessity but also highlights increasing demand.

Bearish Thesis
Here are three points to support the bearish thesis:
  • Consistent Threats: The nature of the business is fighting off threats and protection from threats. This is a risky business because hacks and consistent threats can be detrimental to the business if the attacks are successful. Cybersecurity is one of those businesses where working “most” of the time is not acceptable and once one hack happens others seem to follow. It is a necessary business but a risky one.

  • Requires Business to use Service: Every cybersecurity company needs clients and generally large business clients in order to survive. These companies generally have subscription services for different sized businesses and if companies find their own solutions, cybersecurity could become an in-house solution as companies grow. Cybersecurity is a relatively newer industry and will continue to grow so it will be interesting to see how it develops.

  • Limited Growth Potential: This is an argument that can be made with all ETFs but it applies more to the cybersecurity industry in my opinion because cybersecurity companies have seen incredible growth and incredible jumps in stock price. This will be limited when the highest allocation to a certain stock is just over 6%. This will also the limits in the downward swing as well so it depends on your investment strategy but this could be a positive or a negative depending on why you want exposure to the cybersecurity sector.

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Nathan Worden's avatar
This is a great memo, thanks for putting both bullish and bearish points!