You Can Legally Profit From Identity Theft

Wouldn’t it be great to turn all the risks of life into something positive? To actually profit from the risks that follow us instead of being victims of them?

Well, we can — with some risks, anyway — simply by buying a stock that benefits from that risk.

Take one of the nastiest risks that continually lurks behind us every day and night: identity theft. Entire savings and credit histories have been ruined by thieves stealing personal information to acquire credit cards, take out loans, and purchase large ticket items in someone else’s name.

Protecting yourself from identity theft is one thing, but we can do better than that — we can profit from it.

Investing in companies that offer identity theft protection services is a great way to turn one of the modern age’s costliest risks into a profitable benefit.

The Impact of Identity Theft

Some two million complaints resulting in $1.6 billion worth of fraud were reported to the Federal Trade Commission in 2013, including complaints involving banks, telephone and mobile services, television and electronic media, auto related disputes, debt collection, imposter scams, and lottery scams.

As prevalent as those fraud cases are, the one that tops them all is identity theft, accounting for 14% of all complaints in 2013. While Florida, Georgia, and California ranked as the top three states for identity theft cases, all 50 states experience it.

Of the nearly 300,000 identity theft cases nationwide, some 20% targeted younger adults in the 20-29 age group. This is likely due to the age group’s inexperience with fraud and its lack of awareness of just how vulnerable it is.

However, Jessica Rich, director of the Bureau of Consumer Protection, stresses that all age groups are at risk and therefore recommends that all consumers “visit for tips to prevent and mitigate the damage from identity theft.”

Since it’s such a common concern, additional tips can be found all over the web.

Here, we’ll look at how to turn a profit from identity theft by examining three different companies that make a business out of identity theft protection.

LifeLock (NYSE: LOCK)

Founded in 2005, Tempe, Arizona-based LifeLock, Inc. provides identity theft protection services for consumers and fraud and risk solutions for enterprises through various pre-emptive measures and on-demand corrective ones.

“The company offers LifeLock Identity Alert system, which provides its members with notifications and alerts, including real-time alerts and a response system for identity threats via text message, phone call, or e-mail.” It also “delivers on-demand assessment of the risk of an individual at account opening and throughout the customer lifecycle” through its ID Score program.

How much business does the company actually get? As of December 31, 2013, the company says it “served approximately 3.0 million paying members, and 250 enterprise customers, including financial institutions, telecommunication and cable services providers, government agencies, technology companies, large retailers, automobile and mortgage lenders, and e-commerce providers.”

Having such a large corporate clientele is a definite bonus, since services offered to companies are more complex, more widespread, and carry a bigger price tag. It helped the $1.84 billion small-cap (almost mid-cap) report over $346 million in revenues last year, some $4.01 per share, with net income of over $52 million (2.8% of its market cap).

For this reason, its stock has outperformed the broader market by a measure of +74% versus the SP 500’s +23% over the past 12 months.

Analyst estimates surveyed by Yahoo! Finance expect the stock to climb from the current $20 per share to a low target of $24, a mean target of $26.43, and a high target of $30 — scoring a rating of strong buy at 1.7 (on a scale of 1 to 5, where 1 is buy and 5 is sell).

That high target represents an upside gain potential of 50% in one year.

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Intersections Inc. (NASDAQ: INTX)

Founded in 1996 with headquarters in Chantilly, Virginia, Intersections Inc. provides consumer identity risk management services and helps consumers “understand and monitor their credit profiles and other personal information, and protect themselves against identity theft or fraud,” according to Yahoo! Finance.

Through three company segments, Intersections offers credit information, data monitoring, and theft recovery services, as well as more “traditional” insurance coverage and services.

The $108 million micro-cap reported an astounding $324 million in revenues last year (almost as much as the above-mentioned LifeLock, which is 17 times larger), which works out to a stellar $17.96 per share. It also reported net income of $19.7 million (18.2% of its market cap).

Yet despite such impressive figures, the stock has recently plummeted from $8.75 in January to some $6 today, a drop of 31%. The drop is likely related to the loss of a major contract with Capital One Services, as a recent SEC filing by Intersections explains:

“On January 24, 2014, Intersections Inc. received a notice from Capital One Services, LLC, of its decision to terminate the Amended and Restated Marketing and Services Agreement dated April 20, 2007… Under the Notice, Capital One reserves the right to extend the date of termination of the agreement beyond July 31, 2014, and at a later time to notify us of the cancellation of existing subscriptions.”

The drop in stock value has resulted in Intersections’ steady $0.20 per share quarterly dividend to measure a whopping 13% annual yield.

It remains to be seen just how much the company’s revenues will be impacted by the loss of the Capital One contract and if the dividend will be reduced because of it.

Equifax Inc. (NYSE: EFX)

Though not primarily an anti-identity theft services provider, Equifax does offer some anti-fraud programs, such as TrustedID.

Founded way back in 1899 and based in Atlanta, Georgia, the company is primarily a financial data and collections services provider, dealing with a broad section of consumer and enterprise credit services.

It makes for a rather diversified holding, given that it offers its financial services to more than a dozen industries, including utilities, mortgage banking, retail, insurance, and health care. It also enjoys some nice public contracts with state and federal governments, not just in the U.S. but in fifteen countries including much of Central and South America, as well as Western Europe.

The $8.54 billion mid-cap (almost large-cap) reported revenues of $2.3 billion in 2013, an outstanding $19.01 per share, with net income of over $272 million (3.18% of its market cap).

Its stock has modestly outperformed the broader market by a measure of +27% versus the SP 500’s +23% over the past 12 months. Analyst estimates surveyed by Yahoo! Finance expect the stock to range from the current $70 per share to a low target of $65, a mean target of $74.30, and a high target of $81 — scoring a slight buy rating of 2.4.

Its high target represents an upside gain potential of over 15% in one year.

While thieves are constantly on the prowl looking for unprotected consumers to victimize, we can at least take some comfort in knowing there are precautions we can take to mitigate the risks — one of which is investing in companies that actually profit from the profiteers who profit from us.

Identity Theft Companies (small)Click Here to Enlarge

Until next time,

Joseph Cafariello for Wealth Daily

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