Dwaine Van Vuuren, head of global security contracts for Dimension Data in Cape Town, has spent much of his career preaching to company executives about the need to strengthen their network security systems.

His perseverance has paid off. Business is booming for Dimension Data, with revenue growing almost 40 percent a year, and the investment community is starting to take note. At last count, five major securities firms had "buy" recommendations on Dimension Data's stock.

Van Vuuren's mission to protect corporations against hackers, phishers and spammers has taken on new urgency and weight as legislation increasingly tries to make executives more accountable for security leaks. The 2002 Sarbanes-Oxley corporate governance and disclosure law in the United States is just one example.

U.S. companies are expected to spend more than $10 billion this year on security compliance alone, according to AMR research, a consultancy. In Europe, sales of network security appliances are expected to exceed $1.4 billion in 2009, up from around $625 million in 2004, according to IDC, a market research group.

The stakes are sizable. Worldwide economic damage caused by digital attacks - overt and covert - totaled $470 billion to $580 billion in 2005, according to a study by Mi2g, a London-based security research firm.

Computer-network attacks last year on U.S. companies surveyed by the Computer Security Institute and the Federal Bureau of Investigation cost those companies an average of $250,000 each. Attacks that resulted in the theft of proprietary information on average cost companies more than $355,000.

Threats do not come from external sources only; employees are also a growing source of concern. According to the American Management Association, 26 percent of U.S. companies have fired workers over their use of office Internet access; 25 percent have terminated employees for reasons related to e-mail and 6 percent have fired employees for transgressing rules on the use of office phones.

Despite this, the security industry is not yet a fully fledged investment sector. Security stocks tend to be covered by analysts who follow technology, defense or diversified companies. Consequently, it is still a challenge to find the stocks that might lead to benefits from the trend.

Michel Plakman, manager of a global technology fund for Robeco Bank in the Netherlands, said he would be inclined to focus on niche software providers like RSA Security and Websense. "CEOs are primarily interested in preventing employees from stealing company information and protecting their brand," Plakman said. "Companies that specialize in identity and access software are where the money is to be made."

Van Vuuren said that technology heavyweights like Cisco Systems and Microsoft would be prime beneficiaries of increased security spending. "The 'technology gorillas' will dominate the security software market in 12 to 18 months' time," Van Vuuren said. "Cisco and Microsoft are working toward offering a one-stop solution for network security - to supply, support, manage and secure the network infrastructure. Smaller players will be hard pushed to add value with individual products."

Network security stocks are not the only ones that stand to benefit from increased security budgets. Michael Kretchner, manager of a global equities portfolio for Robeco, said he expected suppliers of alarms and video surveillance equipment to gain.

"The global commercial construction sector is still fairly buoyant and this is driving demand for security hardware," he said. "Alarm penetration rates remain low, especially in Japan, where the market leaders, Secom and Sogho, are well placed to benefit from an uptick in demand."

Sandy Jones, director of Sandra Jones & Co., a security consulting firm, suggested that access control and video surveillance would be major sources of growth over the next few years. "Research into identity verification is attracting a lot of interest," Jones said. "CEOs are striving for more than just an employee badge with a face on it. They want multiple safeguards, which might eventually include the use of biometrics."

Biometrics encompass a range of identification measures like fingerprint analysis, palm readers, facial recognition and retina scans. Although the technologies have been slow to develop, interest is gathering pace, including at companies with household names, like Microsoft, Motorola and Tyco International.

The biometrics devices market, which is currently valued at around $140 million, will reach $12.6 billion by 2010, according to the International Biometrics Industry Association. Players in the field include Bio-Key, which develops and licenses biometrics fingerprint-identification devices; Bioscrypt, Imageware Systems, Facekey, Cogent, Sagem and Identix.

Video analytics have been a major focus of Fortune 100 companies. Jones said that many man-hours and much video footage are still wasted on surveillance. Companies that are active in the field of smart video technology include Object Video, NICE Systems, Verint Technology and 3VR.

Dan Ives, an analyst with FBR in New York, follows NICE Systems, an Israeli company that is trying to catch up with Verint, which he called "the granddaddy of the video surveillance space."

Calling video analytics "a young and fairly fragmented industry," Ives said, "We expect to see a lot more corporate activity in this area over the coming years."

Traditional military contractors might not be obvious beneficiaries of increased spending on network and infrastructure security, but there is significant overlap between defense and the potentially more lucrative area of homeland security, which encompasses border monitoring, data processing and biometrics technologies.

Since its 2002 creation, the U.S. Department of Homeland Security's budget has nearly doubled to $40 billion a year. Jones said defense contractors had morphed into superintegrators by "merging with traditional security companies or leasing the technology of specialist contractors."

The Spade defense index, which broadly tracks the U.S. aerospace and military contracting industry, has beaten the Standard & Poor's 500 index for six consecutive years. In five of those years, the annual gain exceeded 10 percent.

But gains among most military contractors' stocks have fallen off since Gordon England, the acting U.S. deputy defense secretary, issued a budget memo on Oct. 19 that favored across-the-board cuts in military spending. Despite those cuts, many observers remain fairly bullish about the long-term prospects for the sector.

"When a decline in a government budget is reported," said Scott Sacknoff, founder of Spade, "it isn't necessarily a decline but a reduction in what has already been approved."

Sacknoff said that corporate activity would help drive military stocks this year. "Defense companies are keen to explore opportunities in the lucrative information-technology service area and in biometrics," he said. "Both areas are fragmented and ripe for consolidation."

The European military industry has annual sales of $30 billion, though less than $5 billion has been allocated to homeland security, according to Frost & Sullivan, a London-based research company. The primary focus in Europe is on border and maritime security. Companies that are active in these areas include EADS, which signed a border control contract with Romania; BAE Systems of Britain; Thales, the French military contractor; and Smith Group.

Businesses that are engaged in the production of vaccines to counter bioterrorism also are likely to benefit from the growing concern with security. The United States voted in 2003, in the Homeland Security Appropriation Act, to spend $5.6 billion on vaccines by 2008. Research on vaccines for smallpox, botulism toxin and anthrax are attracting the bulk of funding, at $1.9 billion, $1.8 billion and $1.4 billion, respectively.

Nora Frey, a director of Adamant Investments, suggested that Acambis, Bavarian Nordic and Vaxgen all stand to benefit from government grants to prevent bioterrorism.

Frey also holds Human Genome Sciences, which is waiting for funding for its anthrax antibody. Fredy said the company has a two-stage contract to supply tests to the U.S. government, "which has an option to place orders until October 2006 for 100,000 doses."

And in the event that avian flu becomes a significant threat, some investors might be tempted by Sinovac, a Beijing-based company that is developing vaccines against avian flu and severe acute respiratory syndrome, or SARS.

Sinovac, which is listed on the OTC Bulletin Board, sells hepatitis vaccines in China and expects to introduce a flu vaccine during the next flu season.

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