The most infuriating aspect of the Internet is its lack of security. Viruses, phishing, system attacks and all kinds of nefarious activity can hijack your personal computer and worse, the databases of companies you do business with that have your ID and credit card information. The recent hack of the federal government underscores just how vulnerable we all are to crashes on the information superhighway.

In this respect, the Internet resembles highways themselves. We can’t imagine modern life without them, but using them comes with a level of risk. To mitigate that risk, auto safety has become a massive, growing business. Likewise, the Internet’s dangers make cybersecurity a booming business and excellent for long-term investment.

Our Internet security holding, Japan’s Trend Micro (OTC: TMICY), is an industry leader and stands to benefit from its inexorable growth. It currently trades around $35.80 per share, and we recommend buying it up to $45.

The Internet security business is becoming more complex, as the threats grow more sophisticated and the remedies to combat them evolve. Last year, five out of six large companies suffered such “cyberattacks,” a 40% increase from the prior year, says CNN. According to data collected by Bloomberg, Goldman Sachs and security software developer Sophos, the number of potentially compromised digital records is up 11-fold, to about 1.1 billion since 2010.

All of this means a soaring demand for the technologies and services that safeguard sensitive information stored electronically. California-based research firm Cybersecurity Ventures sees the global cybersecurity market more than doubling to $156 billion by 2019 from $71 billion last year.

This growth business is increasingly dominated by the biggest providers with the capability to protect the largest corporate and government users.

Trend Micro’s operations are worldwide, so it isn’t bound to Japan’s shaky economy. In the first quarter of 2015, 43% of its revenue came from Japan, while 23% came from North America, 19% from Europe, 12% from Asia Pacific and 2% from Latin America. Trend Micro should win big from the Trans Pacific Partnership treaty between the United States and 11 other Pacific countries, including Japan, in which a joint strengthening of intellectual property protection is a major objective.

The company is also diversified by type of customer. Although Trend Micro’s sales in Japan are divided equally between consumers and companies, 80% of sales outside the country are to businesses.

Trend Micro’s profits increased steadily over the last five years. Also, it has a rock-solid balance sheet, with no debt and $1.6 billion of cash and marketable securities. The high percentage (one-third) of assets in cash and securities should be kept in mind when sizing up the company’s financials. So although its P/E of 26.9 is high, its cash pile distorts this. If you look only at the value of its business, the enterprise value/EBITDA (earnings before interest, taxes, depreciation and amortization) is a relatively modest 11.7 times.

And it has a nice dividend, currently yielding 2.7%. That’s subject to the 10% Japanese withholding tax, which can be offset against U.S. taxes, so it’s slightly more advantageous to hold Trend Micro shares in a taxable account.

When you consider its cash pile and leading position in a critical tech sector, Trend Micro is fairly priced, with revenues and earnings trending gently but steadily upward. It gives us a valuable exposure to the best of Japan’s burgeoning tech sector.


TREND MICRO AT A GLANCE

Trend Micro is among the largest providers of Internet security software, with a market cap of $4.88 billion. Trend Micro’s products protect information on mobile devices, gateways, servers and the cloud. With its products, clients can protect their customers, data centers and information threatened by targeted attacks. The company’s products include OfficeScan, Deep Security, Deep Discovery, InterScan Web Security and ScanMail Suite for Microsoft Exchange.

For consumers, Trend Micro provides antivirus and security software that also protects mobile devices.

For small businesses, it makes antivirus software for networks, while for large businesses Trend Micro’s virus protection and intrusion detection softwares, typically offered through a cloud service provider, keep the business’s own networks and activities on the cloud secure.

Headquartered in the Philippines and with forensic operations based in Singapore, Trend Micro has 1,200 employees in 10 locations.

 It owns a great deal of intellectual property, with 67 patents approved in the last four quarters alone.