Institutional investors buy into Internet security stocks despite some heavy short selling

In spite of the disbandment of the group (LulzSec) responsible for the recent cyber security attacks on high profile organizations, including Sony’s PlayStation Network and the U.S. Senate, we see that institutional investors who lend their shares have been building holdings in internet security related stocks. Yet short sellers remain active as the shares in many of these companies have surged to recent highs.

As can be seen from the Bloomberg Relative Value screen below, the share price of Sourcefire, Inc. (NASDAQ:FIRE) has seen volatility, but recently reached a six month high. Short sellers have become increasingly bearish towards this stock as short interest reached a new annual high of 16% of the total shares, which represents almost half of the lendable supply out on loan. In contrast, institutional owners who lend are increasingly bullish and have increased their holdings by 40% over the past year to 36% of the total shares.

The shares of Check Point Software Technologies Ltd (NASDAQ:CHKP) have rallied over the past year, consistently reaching new annual highs. Short interest increased over the third quarter of 2010 from 4% to 6% of total shares outstanding. Since then, there has been little change in short interest as the share price has continued to rally. Institutional investors hold almost a fifth of total shares with little change over the past six months.

Verisign, Inc. (NASDAQ:VRSN) is the only stock in our screen which has seen bearish sentiment from long only funds who lend. These institutional owners have reduced their holdings by 15% of total shares over the past year. Short interest has been gradually falling over the year, yet the peak in the share price led to an uptick from 4% to 6% of the total shares in April and it has since held steady.

Fortinet, Inc. (NASDAQ:FTNT) has performed well over the past year with shares rising to new annual highs. Although short interest has been in gradual decline during this period, there has been a recent uptick to over 3% of the total shares. Despite this, institutional ownership has increased to 16% of total shares.

F5 Networks, Inc. (NASDAQ:FFIV) has recently been the subject of several upgrades from analysts, following its move towards cloud computing. The company also has an internet security solutions business line. Following heavy short covering over March, short interest fell to less than 1.5% of total shares, but has since more than doubled to almost 4%. Institutional owners have also increased their holdings in line with recent increases in short interest, and are currently holding almost a third of the total shares.