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Monday, October 14, 2019  Spokane, Washington  Est. May 19, 1883
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Motley Fool: An opportunity in security

Palo Alto Networks is a best-in-class security stock with an appealing valuation. (Courtesy photo)
Palo Alto Networks is a best-in-class security stock with an appealing valuation. (Courtesy photo)

Shares of cybersecurity specialist Palo Alto Networks (NYSE: PANW) have been in a slump for much of the summer, recently down over 16% from their all-time high in May. The story isn’t as bad as it looks, though, and this appears to be a good buying opportunity for risk-tolerant investors.

Palo Alto’s revenue actually jumped 22% year over year in its fourth quarter, thanks to continued market-share gains and broader adoption of its industry-leading cybersecurity product portfolio. Revenue for the full fiscal year surged 28% to $2.9 billion.

Several headwinds have been pressuring the stock. For starters, many of Palo Alto’s customers are transitioning over to shorter annual contracts instead of multiyear ones, which is affecting revenue recognition. The trade war between the U.S. and China is also having a negative, albeit small, impact on the bottom line, and Palo Alto is shelling out cash to fund its string of acquisitions over the last couple of years. The company recently announced plans to acquire Internet of Things, or IoT, security specialist Zingbox for $75 million.

Nevertheless, this is a best-in-class security stock with an appealing valuation. Given the growing importance of cybersecurity in today’s digital age, Palo Alto appears to be a great long-term growth story worth holding onto for the foreseeable future. (The Motley Fool owns shares of and has recommended Palo Alto Networks.)

Ask the Fool

Q: What’s swing trading? – F.W., Morganton, North Carolina

A: It’s a form of short-term investing, in which investors buy stocks and hold them for just one or more days or weeks. Swing trading is a lot like day trading, but day traders are typically in and out of a security within a single day – sometimes holding for just a few minutes. Just as day traders do, swing traders employ “technical analysis,” studying stock-price movements and looking for seemingly promising patterns. Unlike most day traders, they may also employ some fundamental analysis – such as evaluating a company’s business strength, profit margins, growth rates, debt levels, valuation and so on – though many will not.

The Securities and Exchange Commission has warned that “Day trading is extremely risky and can result in substantial financial losses in a very short period of time”; go to and search for “Day Trading: Your Dollars at Risk” to read its report.

Swing trading is slower-paced and not quite as risky. But a more dependable road to riches for most people is simply buying into healthy and growing companies and holding on for years, or just sticking with low-fee index funds.

Q: Where can I read about the world’s best investors? – P.B., Appleton, Wisconsin

A: Try “Value Investing: From Graham to Buffett and Beyond” by Bruce Greenwald, Judd Kahn, Paul Sonkin and Michael van Biema (Wiley, $22); “The Value Investors: Lessons From the World’s Top Fund Managers” by Ronald Chan (Wiley, $38); and “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies” by John Reese and Jack M. Forehand (Wiley, $30). They’ll introduce you to legends such as Warren Buffett, Benjamin Graham, Peter Lynch, Seth Klarman and Philip Fisher.

My dumbest investment

My dumbest investment was buying into Zynga at its initial public offering, or IPO. I’m still underwater almost eight years later. – B.B., online

The Fool responds: The game company Zynga achieved great success following its founding in 2007, with early games such as Zynga Poker, Mafia Wars and FarmVille becoming big hits on the Facebook platform. Believers in the company’s promising future were excited about its IPO, because that would give them a chance to invest in it by buying the first shares issued on the public stock market.

The shares were priced at $10 apiece, giving the company an overall value of around $7 billion. As you know, the stock went mostly down, not up, once on the market – as happens with many IPOs. Zynga stock was trading below $6 per share within six months, and below $3 a year after its debut.

IPOs can be very volatile – even Facebook’s shares ended up down some 31% a year after debuting – though they’ve gained nearly 800% over the past seven years.

It makes a lot of sense to just steer clear of IPOs for a year or so, giving the shares some time to settle and the companies a chance to report solid performance over a few quarters. Zynga’s future isn’t crystal clear, but its shares have surged more than 40% over the past year on rising revenue and shrinking losses.

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