Bottom-feeders rising to top again Death care, prison and pawn shop stocks leap to highs
CHICAGO (CBS.MW) -- The bottom-feeders are roaring. As an economic slowdown beats up the broader markets, the misery index is doing just fine. Funeral companies, private jailers and even pawnshop chains are among the last to be first in 2001 as shares in major industry players show dramatic percentage increases in value.
Private prison stocks have also been breaking out of their respective holes as investors drive shares to year-long highs. Corrections Corporation of America (CXW: news, msgs, alerts) was teetering into delisting territory prior to its 1-for-10 reverse split two weeks ago. At the time, it was trading for under a buck; on Monday it closed off 35 cents to $13.75. Cornell Corrections (CRN: news, msgs, alerts) has also been a star performer; from just $3.31 in December, shares closed at $12.15 on Monday, shanking up to a 52-week high of $12.26 in the process. Wackenhut Corrections (WHC: news, msgs, alerts) , though off its Friday apex of $14.30, is still better than double its pre-Christmas price. Shares in the company closed down 94 cents to $13.22.
Part of the bounce is defensive as these stocks are widely perceived as relatively safe plays -- people die, people go to prison, people hock mom's jewelry to pay gambling debts, etc. -- regardless of the overall financial atmosphere. Another major factor at work, particularly in the death and prison categories, is the drop in interest rates. Whether they are buried under piles of IOUs (a la Service and Cornell), dependent on a constant inflow of new capital or both (Corrections Corp), any let up by the Fed is apt to boost their fortunes.
Key to growth Locked out of Wall Street for the last few years, private prison operators "are starting to get some good news," said Barrington Research's Jim McDonald. While for-profit turnkeys had their own bull run in the 1990s, construction backlogs, tight money and bad press landed them in solitary. Now, with interest rates down and improved visibility for the capital-intensive business, "people are viewing the whole sector as a recession-resistant play. The stocks got way undervalued and as they came back to reasonable value, the momentum just took over," he said. Each company has its own unique dynamics, he said, but he thinks Cornell has the most appreciation potential if they can pull off an expected sale/leaseback deal, although he said investors should be aware the company is "leveraged up to the eyeballs." Wackenhut "is the quality one in the group [and] probably a good long-term play," he said, while Corrections Corp., on the other hand "is the big roll-the-dice gamble." The company has a billion dollars worth of debt and "it is making its debt payments but I don't see it making positive earnings in the next three or four quarters," McDonald said.