MCAFEE

The initial threat came in the form of an intimidating new challenger, Microsoft, which released Windows Live OneCare, an all-in-one suite of security applications and services for consumers in May 2006. Then an investigation into McAfee's stock options granting practices led to the resignation of longtime Chairman and Chief George Samenuk, and the firing of President Kevin Weiss last October. The options probe is ongoing.

As McAfee seemed to be crumbling from within while facing an increasing number of challenges in the marketplace, investors grew wary. At one point last August, the stock plummeted to a 52-week low of $19.52.

Yet despite being faced with obstacles that would've downed a lesser company, McAfee has not only managed to stand its ground but gain some as well. A new management team, a strong product line and new sales initiatives have made the company a much more secure pick for investors. "They had their backs up against the wall. There was a lot of negative noise around the company," says Daniel Ives, an analyst at Friedman Billings Ramsey & Co. "Yet they've executed better than anyone in security software in the last year or year-plus."

Since the beginning of this year, McAfee's shares are up almost 26%, trading at a recent $35.45. And while that may be quite a run-up from last summer's low, I still think McAfee has enough momentum to continue the momentum.

One of the company's most striking moves was tapping EMC veteran Dave DeWalt to be CEO and president. Since assuming the helm in March, DeWalt has brought a respected lineup of execs to the top ranks, improving the company's credibility, especially among the Wall Street crowd.

"He has an impressive track record," says Pacific Crest Securities analyst Rob Owens. "There's a lot of optimism within the investment community since Mr. DeWalt has come to McAfee."

Also working in the company's favor is timing. With a growing number of nuisances and threats, businesses and consumers are spending plenty of money to protect their data. Independent research outfit Gartner expects world-wide security software revenue to hit $9.1 billion this year, up 10.7% from $8.2 billion in 2006.

Businesses in particular are looking to upgrade and they want a whole host of security services antispyware, firewall, policy enforcement and data-leak protection all in one package. Creating these suites of services is an area where McAfee excels and its most recent line of products, called TOPS (that stands for Total Protection Suite), hits all of the enterprise security hotspots, says Owens. By focusing its product lines on these high-demand applications, Owens believes that McAfee has been growing its subscriber base at a faster clip than larger rival Symantec.

McAfee's advances have also been helped by the company's new sales tactics. Since the beginning of this year, McAfee's sales team is working directly with its enterprise customers instead of relying on middlemen to do the legwork for them, wrote A.G. Edwards analyst Kevin Buttigieg in a June 12 report. In addition, McAfee is also offering its sales team larger incentives on the sale of new products.

On the consumer front, McAfee seems to be holding its own against Microsoft. (Microsoft's security products are geared toward consumers.) Since its launch last May, Microsoft's OneCare is believed to have taken only a minimal amount of market share from McAfee. "The bark was worse than the bite in terms of Microsoft," says FBR's Ives. "Down the road, [Microsoft] is a competitive threat, but in the next year or two McAfee has a very defensible position."

Of course, gun-shy investors will be keeping a close eye on how McAfee builds up its defenses. The company is slated to report its second-quarter earnings on July 26 and there will most likely be some volatility in the stock ahead of the report. According to Thomson Financial, analysts estimate that McAfee will report preliminary results of $306.6 million in revenue and earnings of 37 cents (excluding options expense). That's up from $277 million in revenue on earnings of 30 cents a share in the year-ago second quarter.

Investors will have to take into account that these results are only "preliminary" due to the company's ongoing stock-options investigation, which will require it to restate its past earnings. Management says the review will result in $100 million to $150 million in noncash, stock-based compensation charges over the past 10 years.

Pacific Crest's Owens believes the investigation could come to a close during the current third quarter. That could help lift a cloud that has been hanging over the company since last year. In addition, the company will be able to resume its $246 million share-repurchase plan, which it had to put on hold during the options review. All of this could lead to a nice pick-up in the stock price.

Ives thinks so. He recently upped his price target on the company's shares to $42. (The median price target among analysts, according to Thomson, is $40.) Ives says the company has "the right products at the right time" and should see some healthy earnings growth going forward. Owens, who has a price target of $43, echoed those sentiments, calling McAfee "an undiscovered asset" with a strong product portfolio. (Neither of the analysts' firms makes a market in McAfee's shares nor do they have investment-banking relationships with the company.)

Few companies could undergo the type of onslaught of bad news that McAfee has and still manage to gain ground in the marketplace. Now that its woes are mostly behind it, investors may find themselves with a much less risky and much more promising investment pick.