Barron's Article on Prison Stocks for Monday, 10-8-07
Granted, the jailers are in a risky business. A riot or high-profile escape or a case of abuse can cost them dearly -- in the form of congressional hearings, lost federal contracts and more. But the rewards to investors can be considerable -- not only in stocks but also in bonds.
JOHN MOUSSEAU, A PORTFOLIO MANAGER at Cumberland Advisors, likes triple-A , insured bonds issued by prison authorities in Sunbelt states like Virginia, the Carolinas and Arizona. "From a demographic perspective, you look for prison bonds in growth areas of the country," he says. "Growing areas mean more crime!"
He says that Cumberland likes bonds in which a number of counties or regional jurisdictions share the cost of a prison and agree to use it exclusively for their convicted bad guys. Mousseau says that if the state helps the regional players with construction costs, that makes the bond issue even more attractive. One year ago, he bought Virginia-based Rappahannock Regional Jail Authority 4.5% due Dec. 1, 2036, that was yielding 4.60%. "They are probably worth that or a touch less today," he says.
If you have reservations about owning a stake in a harsh institution like a prison, consider this: Some of our nation's most creative CEOs now reside in prisons. That thought sure makes us feel better about this kind of investing.