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We are buying the dip on this cybersecurity stock – CNBC


We are buying the dip on this cybersecurity stock – CNBC

In this photo illustration, NortonLifeLock company’s logo is seen displayed on a smartphone and a pc screen.

Pavlo Gonchar | SOPA Images | LightRocket | Getty Images

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)

Shortly before the closing bell, we will be buying 300 shares of NortonLifeLock (NLOK) at roughly $24.89. Following the trade, the Charitable Trust will own 2,600 shares of NortonLifeLock, representing 1.53% of the portfolio.

As a reminder, if our trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. By waiting, we presume that Investing Club members will receive a better price in the market than what we do. 

NortonLifeLock announced Monday morning that its pending merger with the European-based consumer cybersecurity company Avast was cleared by the U.S. Department of Justice. The news passes a regulatory hurdle that we previously thought posed some risk because the deal combines two of the top three market leaders in the consumer cybersecurity industry. NortonLifeLock continues to expect the transaction will close in mid-2022. 

Despite what we believe to be is positive news, shares of NortonLifeLock are noticeably under pressure today, down roughly 2-3% at the time this was written. Several names in the cybersecurity space were trading lower Monday after Morgan Stanley initiated CrowdStrike with an underweight rating, but there could be a company-specific reason that explains the NLOK decline too.

What’s causing the pullback

We think the pullback today might be because NortonLifelock will have to issue stock as part of the transaction. The final terms of the deal are dependent on the election by Avast shareholders — the meeting is scheduled for this Thursday — but by and large, investors do not like it when their ownership percentage of a company gets diluted. No matter the stock NortonLifeLock will have to put up, we are comfortable with the dilution for a few reasons.

Most importantly, NortonLifeLock and Avast coming together makes both strategic and financial sense. It creates the industry leader in consumer identity and privacy solutions with over 500 million users and roughly 40 million direct customers. We see those numbers growing in the coming years, as the combined company puts together a comprehensive offering in consumer cyber safety — which is a significantly unpenetrated market that will only become more important as more and more of our daily lives become ingrained into the digital world. 

There are significant value creation opportunities from the deal too, with management identifying $280 million …….


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