How to Play the Cyber Security Bull Market

Brian Hicks

Updated October 25, 2011

He ran, but he could not hide.

In the end, it was only a matter of time before the eye in the sky had him in its electronic sights…

Attempting to escape the town of Sirte last week, Muammar el-Qaddafi’s 42-year reign met its match at the hands of a robot.

Not long after being discovered and fired on by a U.S. Predator drone, the dictator finally met his end as rebel forces swarmed over his crippled convoy.

What followed gave him a place at the top of the hit list as America’s dominance of the robotic battlefield finished its latest bloody chapter.

However, like cruise missiles and jet fighters before them, these robotic squadrons are doing much more than just keeping dictators awake at night…

They are changing the face of a larger battlefield as we know it.

Since first being introduced in Iraq and Afghanistan ten years ago, the numbers of these unmanned aerial vehicles (UAVs) have grown from 167 in 2002 to more than 7,000 today.

These weapons now fly so many sorties that the United States Air Force is recruiting more UAV operators than traditional pilots for the first time in its history. This new paradigm is growing so fast that some believe UAV pilots could someday make Top Gun jocks a thing of the past…

But what if I told you these multi-billion-dollar drone fleets had an Achilles’ heel — that this advanced military technology could be hacked with just $26 worth of off-the-shelf hardware?

Well, that’s exactly what Iraqi insurgents will able to do in 2009.

Using software programs such as SkyGrabber (available for as little as $25.95 on the Internet), Shiite rebels were actually able to regularly capture U.S. drone video feeds. And while the Shiite Rebels never took control of the drones, these intercepts pointed out a serious vulnerability in the growing network of drones that has suddenly become America’s weapon of choice.

Those weaknesses were on display again a few weeks ago when the entire fleet of U.S. UAVs was compromised by a virus, potentially threatening their reliability during combat missions.

First reported by Wired magazine, the malware infected the cockpits of Predator and Reaper drones, logging every single keystroke made by the remote pilots as they flew missions overseas.

And just like a virus you can pick up on your own laptop, this one is proving hard to get rid of…

“We keep wiping it off, and it keeps coming back,” one of three sources told Wired’s Danger Room about the virus.

“We think it’s benign. But we just don’t know.”

Target-Rich Environment

That kind of vulnerable underbelly represented by the drone fleet attack is only part of the turf now as critical national assets and weapons systems run by computers create a target-rich environment for foreign governments and hackers around the world.

The growing list of cyber attacks with national security implications has included the following:

  • June 2009: First version of Stuxnet virus starts spreading, eventually sabotaging Iran’s nuclear program. Some experts suspect it was an Israeli attempt, possibly with American help.

  • November 2008: A computer virus believed to have originated in Russia succeeds in penetrating at least one classified U.S. military computer network.

  • August 2008: Online attack on websites of Georgian government agencies and financial institutions at start of brief war between Russia and Georgia.

  • May 2007: Attack on Estonian banking and government websites occurs that is similar to the later one in Georgia, but has greater impact because Estonia is more dependent on online banking.

Here in the United States, targets could include defense networks, the energy sector, emergency preparedness systems, financial services, telecommunications, even the agriculture sector…

In fact, the U.S government takes these threats so seriously that the Department of Defense is prepared — based on the authority of the president to launch a cyber counterattack or an actual bombing of the source if confronted with a similar “digital Pearl Harbor.”

Cyber Security Goes Into Overdrive

The existence of these threats has made cyber security one of the hottest buzzwords of the last five years.

After all, cyber security is not the wave of some distant future; it’s a response to a clear and present danger that will need to met in the years to come.

For investors, this undeniable trend is going to create a huge money-making opportunity as public companies with security expertise begin to win massive new government contracts.

In fact, a recent report from Input predicts federal investment in cyber security will reach $13.3 billion by 2015, up from $8.6 billion in 2010. That’s a compound annual growth rate of 9.1% — nearly twice the rate of other government IT spending.

As I discussed in this article, these trends are going to mean big business for firms like SAIC Inc. (NYSE: SAI).

But let’s face it: There are going to be quite a few winners as this new battlefield takes shape. And I’ve found several technology companies on the verge of explosive growth, much like the defense giants of old when it comes to protecting our shores.

Next week, I’ll be releasing a new report in which I identify one of the biggest winners in this fast growing arena.

This one has “double” written all over it, so stay tuned…

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