Private Prison Stocks on Death Row
Hey everybody Dave Bartosiak with Trending Stocks at Zacks.com. Welcome to the 100th episode bonanza! We’ve learned a lot about putting these together over the last 99 videos and my hope is, the next hundred will be even more fun. Full of questionable imagery, suggestive puns, gratuitous nudity, unrelenting celebrity shaming, the strongest of beard games, and a whole lotta WHAT ABOUT DAVE? We’re going to go into attack mode. Nothing will be safe. We’re going to send Cheddar to the Shredder, roast the Capitalist Pig and have Grandpa Jim pushing the panic button. Save a seat at the table gents, we’re on our way.
But first, today we’ve got a follow up to some news out of the Department of Justice yesterday. Deputy Attorney General Sally Yates said the government is beginning the process of reducing and ultimately ended the use of privately operating prisons. She said, “They simply do not provide the same level of correctional services, programs, and resources; they do not save substantially on costs; and as noted in a recent report by the Department’s Office of Inspector General, they do not maintain the same level of safety and security.”
See, this is how I know Netflix (NFLX) is making an impact with “Orange is the New Black.” I mean, I think so because I don’t, uh, I don’t watch it. Never seen it at all. But I heard that the show illustrates life inside a women’s prison that’s run by a private corporation rather than the government and it’s terrible for Piper.
The prison reformers are rejoicing as they believe this is a step in the right direction to end modern day slavery, I mean mass incarceration. Thanks to drug laws, from 1980 to 2013, the Federal prison population grew from 25,000 to 219,000. That’s just the Federal level. The state level has ten times as many.
The immediate knee jerk reaction in the market yesterday sent shares of Corrections Corp of America (CXW) and GEO Group (GEO) tumbling 35% plus. I know what you’re thinking, “I can profit on lawlessness in America without buying shares of Smith and Wesson (SWHC)! Yaaaas!” And other people are thinking, “That’s terrible! They have for-profit prisons. Doesn’t that incent the company to keep people in prison?” Ehh, kinda.
But listen, when it comes to making money in stocks, I don’t care what they do. I give the facts and let you make a decision. You can be full of flower power with calloused hands from tree hugging, or a terrorist Cruella DeVil that rips the legs off spiders and eats em like my ex-girlfriend, it doesn’t matter to me and I’m not here to judge.
Corrections Corp pointed out that federal prisons affected by the decision make up only about 7% of their business. Obviously the fear is that state governments follow the Federal decision and a larger percentage of CXW’s business will get hit. Because we all know how much better state governments are at running things…into the ground, than private corporations.
Hate to say “I told you so” but the Geo Group has been a Zacks Rank #4 (Sell) or worse since August 11th. The reason for the drop in the rank was two analysts dropping their estimates for the current quarter from 89 cents to 75 cents and cutting the current year number from $3.41 to $2.88. These stocks may be recovering nicely today but they could still be overdone here. With huge risks on the table I’d personally look elsewhere for opportunities. Now if you were already long heading into this event you have to ask yourself if you want to be locked up forever, waiting for an opportunity to get out. Ironic, isn’t it.
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