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Hackers Spread Holiday Havoc

10 January 2014 in Trading Ideas

You may have heard about the little issue that Target Corp. had over the holiday shopping season.

Well, it wasn’t Target, exactly – but rather the issue that faced 40 million of its customers who had shopped at the company’s US stores anytime from Nov. 27 to Dec. 15. It was during that timeframe, the company announced days later, that credit card and debit card numbers, names and other data had been hacked from cards.1

Target tried to make good for the damage – and perhaps win back some offended or fearful customers – by offering a 10% discount on merchandise sold inside its stores during the final weekend before Christmas.

Unfortunately, as the New York Times pointed out, the company couldn’t do anything about the apparent appearance of hacked consumer data within days on the black market.

And just a week later, Target’s nightmare (and that of its customers) continued, with the company forced to admit that the hack also included criminals making off with customers’ encrypted PIN data as well, although the company said that it keeps the keys to decrypt PIN data on separate systems from the ones that were hacked.

cyber security motifAccording to the Times, cyber security experts have been less than reassured, citing the hacker mantra, “where there’s a will, there’s a way.”

Some of the banks of Target’s hacked customers weren’t taking chances either. Even before Target’s late-December admission about hacked PINs, both JPMorgan Chase and Banco Santander both placed caps on customer purchases and withdrawals made with the compromised credit and debit cards.

One takeaway, if any, is that the Target hack is far from uncommon and incentives continue to exist for future crime. The Times said that hacked platinum cards can fetch $35 each on the black market while corporate cards can get $45.2

According to card industry newsletter the Nilson Report, the US accounts for 47% of global credit card fraud, even though it generates only 24% of worldwide card spending.

Another takeaway, of course, is that stolen card data is just one piece of the overall need for all kinds of digital threats, and hence expectations for a steadily growing cyber security market.

The Cyber Security motif is up 11.8% in the past month and has climbed 50.4% in the past 12 months. The S&P 500 is up 1.8% in the past month and has increased 28.5% in the past year.

Unsurprisingly perhaps, many cyber security stocks have been climbing steadily since the Target news and the disclosure of a couple of cyber attacks on banks.

In addition, the move by some cyber security firms to pad their offerings continues. Fireye shares have surged following the company’s acquisition last week of computer forensics specialist Mandiant.

Cyber threats appear to be here to stay. For investors, it may logically follow that demand for cyber security firms’ offerings will be just as popular, reaping benefits for stocks in the sector.

1Nicole Perlroth, “Target’s Nightmare Goes On: Encrypted PIN Data Stolen,” NYTimes.com, Dec. 27, 2013, http://bits.blogs.nytimes.com/2013/12/27/targets-nightmare-goes-on-encrypted-pin-data-stolen/, (accessed Jan. 8, 2014).

2Nicole Perlroth, “Target Struck in the Cat-and-Mouse Game of Credit Theft,” NYTimes.com, Dec. 19, 2013, http://www.nytimes.com/2013/12/20/technology/target-stolen-shopper-data.html, (accessed Jan. 8, 2014).