How To Profit From The eBay Inc Hacking Scandal [Lifelock Inc, Amazon.com, Inc., Target Corporation]

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May 30, 2014 11:21am NYSE:XLK

key to profitJay Taylor:  When news broke last week that eBay (Nasdaq: EBAY) databases containing customer account information had been hacked, it was bad news for consumers.


Stolen were usernames, encrypted passwords, birth dates, physical addresses , phone numbers and e-mail addresses.

Though eBay insists that customer passwords remain encrypted and no fraudulent activity has occurred on the site, the eBay hacking scandal could have far reaching consequences.

For starters, the stolen information could easily be exploited by identity thieves.

Most importantly, eBay may have lost the very asset on which its business was built.

Trust.

Though this latest security breach should be concerning to eBay users like myself, it is important to take a step back and understand the market implications for such an event.

Here are three best (legal) ways to profit from the eBay hacking scandal.

LifeLock (NYSE: LOCK)

LifeLock has been a direct beneficiary of the growing threat of identity theft. Not only does the service monitor your credit it also monitors your bank account for fraudulent activity. The company has a $1,000,000 identity theft guarantee.

It is almost like identity theft insurance.

When Target was hacked late last year I wrote an article offering LifeLock as one of the ways to profit from the aftermath.

Shares of LifeLock took a hit in early May after the company disappointed investors with its earnings guidance. The stock is down 26% since the Target data breach and 28% in just the month of May.

The stock surged into January after Target’s data breach was disclosed but hasn’t had a similar move as a result of the eBay breach. I think this is a mistake, as the kind of personal data stolen from eBay increases the risk of identity theft for these individuals and increases the likelihood that they will seek out LifeLock’s services.

Amazon (Nasdaq: AMZN) 

It is hard to recommend a stock with a price-to-earnings ratio of almost 500, as its valuation is clearly disconnected from its actual earnings. That said, I personally own shares of Amazon in my Roth IRA and believe the growth thesis is intact.

But if you believe in the power of ecommerce and want to divest from eBay, Amazon is the natural alternative. Besides its own retail store, Amazon allows affiliates to sell products through its marketplace, much the same way that “Power Sellers” use the eBay platform to sell products.

If eBay’s mismanagement of this situation results in the loss of its Power Sellers, they would likely turn to Amazon.

Amazon is down 23% from 52-week highs set in January. Some would look at this as a buying opportunity. But there are plenty of others, including hedge fund manager and billionaire David Einhorn,who believe stocks like Amazon are currently in a bubble.

Target (NYSE: TGT) 

With the cyber crime spotlight shifting to eBay and away from Target, investors will get a chance to focus on the company’s fundamentals again.

Shares of Target are down more than 12% since the company disclosed its hacking scandal. During that time the company axed its CEO. It has also committed to upgrade the security of both its internal payment systems and its point-of-sale systems, the weakness that was exploited by hackers.

Though the company will surely face some monetary damages resulting from the scandal, the company has lost over $5 billion in market value. I find it hard to imagine that the hacking incident will result in nearly that much in damages for Target.

I believe the market has greatly overestimated the effects of this scandal on Target’s profitability and created an opportunity for us to buy shares of this great retailer while it still yields more than 3%.

This article is brought to you courtesy of Jay Taylor from Wyatt Research.


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