Lock Up Your Profits: List of Prison Stocks For Your Watchlist

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(List compiled by Andrew Dominguez. Data sourced from Finviz.)

At first glance, the police and judicial systems seem to have excelled at finding and incarcerating millions of criminals around the country. A recent report by the Justice Policy Institute, however, is claiming that private prison companies have been lobbying for longer and harsher prison sentences, which they argue has led to increased incarceration rates (as opposed to probation and parole sentences).

According to the report, private prison populations have increased faster than the entire incarcerated population. During the last decade, the total prison population grew by 16%. Simultaneously, the number of federal prisoners in private facilities grew by 120%, while the number of state prisoners in private facilities grew by 33%.

The report says the two largest companies’ lobbying activity has amounted to $835,514 in donations to federal politicians and $6M to state politicians since 2000 (via City Watch). 

Of course, it is important to keep in mind that criminal law and the judicial system are probably pretty hard to influence. And the campaign donations from the prison industry’s biggest players pale in comparison to the $16M donated by the Tobacco Industry in 2010 alone, not to mention the billions of dollars in campaign donations from the defense, natural resources, finance, and other sectors.

T.C. Robillard of Signal Hill told CNBC last year that he was bullish on prison stocks. His reasoning: prison populations are constantly growing, recessions lead to overcrowded government prisons, and the government will look to private firms to house the excess inmate population.

This outlook, of course, is largely reliant on healthy government budgets as prisoners are expensive to house and guard. The state of California, for instance, recently canceled a contract to house low level state offenders in three private prisons run by The GEO Group, according to a report by Businessweek. Those three prisons would have generated up to $35M combined.

According to the state government of California, the average cost to house an individual prisoner for one year is a whopping $47,102. By comparison, the average income for an American individual is $47,200, according to the CIA(GDP per capita purchasing power parity).

The prison industry could be nearing a turning point. Millions of inmates, a very large portion of the total prison population, are serving time for non-violent drug crimes – a group that could decrease in size with looser drug enforcement laws, like the recent decriminalization of marijuana use in Connecticut where Gov. Malloy said that he would prefer to use the criminal justice resources for more serious and violent crime.

“… in a time of declining crime rates and tight state budgets, smart reforms are gaining ground, and most aim to reduce the prison population,” writes The Economist.

Interested in conducting your own research into the private prison industry? To help you out, here is a list of the two largest companies in the industry. Where do you think these stocks are heading?

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List sorted by market cap

1. Corrections Corporation of America (CXW): Property Management industry with a market cap of $2.4B. It specializes in owning, operating, and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. As of December 31, 2010, it operated 66 correctional and detention facilities, including 45 facilities that it owns, with a total design capacity of approximately 90,000 beds in 19 states and the District of Columbia.

As of December 31, 2010, it was also constructing an additional 1,124-bed correctional facility in Millen, Georgia. It also owns two additional correctional facilities that it leases to third-party operators. Its facilities offer a range of rehabilitation and educational programs, including basic education, religious services, life skills and employment training, and substance abuse treatment. It also provides healthcare (including medical, dental, and psychiatric services), food services, and work and recreational programs.

2. The GEO Group, Inc. (GEO): Security & Protection Services industry with a market cap of $1.45B. It is a provider of government-outsourced services specializing in the management of correctional, detention, mental health, residential treatment and re-entry facilities, and the provision of community-based services and youth services in the United States, Australia, South Africa, the United Kingdom and Canada.

It operates a range of correctional and detention facilities, including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, mental health, residential treatment and community-based, re-entry facilities. It offers counseling, education and/or treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities, which it manages. It also provides secure transportation services for offender and detainee populations as contracted.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: CXW , GEO

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