Four Ways to Invest in Cyber Security

It’s the electronic equivalent of the neutron bomb.

Delivered in a string of malicious code, it allows unseen enemies to take down critical points of the national infrastructure without spilling a single drop of blood.

But don’t believe for a second that it’s not just as dangerous…

Because while it doesn’t involve nuclear weapons, cyber war’s ability to disrupt an enemy is just as devastating.

As a result of these growing dangers, the cyber battlefield has suddenly become a top priority for the U.S. Department of Defense. 

The threats are now so pervasive, the Pentagon said last week it will respond with military strikes when necessary — and at times, even go on the offensive.

With more than 15,000 computer networks and 7 million computers being used in hundreds of bases around the world, cyberspace has suddenly become the military’s Achilles’ heel.

According to the Pentagon, unknown attackers try to breach its systems 6 million times a day.  

“When warranted, we will respond to hostile attacks in cyberspace as we would to any other threat to our country,” the Pentagon said in a report mandated by Congress.

“We reserve the right to use all necessary means — diplomatic, informational, military and economic — to defend our nation, our allies, our partners and our interests.”

The dire warnings were a part of a 12-page document that revealed a new war-footing in cyberspace as the U.S. gets more serious about the threats hackers present in the modern world.

For the military, this shift represents the dawn of a whole new era. It’s one in which potential targets could include defense networks, the energy sector, emergency preparedness systems, financial services, telecommunications, even the agricultural sector.

In short, every single facet of our daily lives.

Russian Hackers Attack Illinois

As a recent cyber attack in Illinois has shown, targets include even the water we drink.

According to an industry expert, foreign hackers caused a pump at an Illinois water plant to fail last week.

Experts said the cyber attack, if confirmed, would be the first known attack to have damaged one of the critical systems that supply Americans with water, electricity, and other essential services.

News of the incident became public after Joe Weiss, an industry security expert, obtained a report collected by an Illinois state intelligence center that monitors security threats.

The report, dated November 10th, describes how a series of minor glitches with a water pump gradually escalated to the point where the pump motor was being turned on and off frequently. Over time, it was enough to disable the pump completely.

“This is a big deal,” said Weiss. “It was tracked to Russia. It has been in the system for at least two to three months. It has caused damage. We don’t know how many other utilities are currently compromised.”

Just like the Stuxnet virus before it that destroyed parts of an Iranian nuclear plant, the Illinois attack focused on the electronic controls systems that are common in everything from water pumps to traffic lights, manufacturing lines, laboratory equipment, power plants, oil and gas pipelines, and nuclear power plants.

Though relatively minor, the water plant strike showed just how real the potential for a much bigger cyber attack is…

“It’s very vivid when something shakes apart and you see black smoke belching out and [the machine] doesn’t do what it’s supposed to do. It’s very vivid when something breaks apart in a fireball,” said Mike Assante, president of the National Board of Information Security Examiners and an expert in power grid security.

As for whether or not there will be a major attack, Assante believes “it’s a matter of time.”

Needless to say, a cyber attack on something as critical as the U.S. power grid would be devastating.

“Are we in a cyber war now?” asks John Bumgarner, research director at the U.S. Cyber Consequences Unit, a Washington-based think tank. Bumgarner was once a cyber warrior with the United States Army.

“No, not yet. Are we being targeted and our nation’s networks attacked and infiltrated by nations that may be our adversaries in the future? Yes.”

Cyber-Defense Spending Ramps Up

To combat these threats, Defense officials are currently seeking more than $3.2 billion in cyber security funding in 2012 — nearly $1 billion more than the Department first reported in February.

What’s more, according to a new industry forecast, cyber security spending is expected to accelerate during the next five years — even in the face of future budget cuts.

By 2016, industry analysts believe cyber security spending will grow by 306%, reaching as high as $13 billion.

Some industry analysts think these costs could eventually reach as high as $40 billion as the threat level escalates.

That, of course, is going to mean a steady stream of new business for companies with computer security expertise…

This list includes big names like Cisco Systems (NASDAQ: CSCO) and Juniper Networks (NYSE: JNPR), along with smaller names like Sourcefire (NASDAQ: FIRE) and Check Point (NASDAQ: CHKP).

I believe numerous technology companies such as these will follow in the footsteps of the defense giants of old when it comes to protecting our shores…

In the meantime, let’s all hope mutually assured destruction works just as good a second time around.

Your bargain-hunting analyst,

Steve Christ

Editor, Wealth Daily