Can Prison Stocks Break The Shackles And Rally Amid Trump's Potential Arrest This Tuesday?

Mar. 19, 2023, 12:00 PM

Prison stocks are underperforming in the current market recovery, with three major publicly-traded ones trading deep in the red in the year to date. This marks a reversal from 2022, when the stocks notched spectacular gains despite the broader market swoon.

The Prison Stock Price Action: Prison stocks belong to companies that own and operate private prisons and detention facilities.

Here’s how three major stocks have fared year-to-date:

CoreCivic, Inc. (NYSE:CXW): (-22.32%)
Geo Group, Inc. (NYSE:GEO) - (-30.87%)
Serco Group plc (OTC:SCGPY) – (-7.6%)

In 2022, the three stocks were up 16%, 41.3% and 11.8%, respectively. When weighed against the performance of the broader market, the gains stand out even more. Last year, the S&P 500 Index, a measure of broader market performance, was down 19%.


Chart Courtesy Of Benzinga Pro data

Why 2022 Was Good: The relative outperformance of prison stocks in 2022 was the result of several factors. Ahead of the midterm elections, many political analysts had predicted a red wave, which did not materialize.

In 2016, when Donald Trump emerged victorious in the presidential election, these stocks went up sharply. Republicans, especially Trump, have long backed tough-on-crime legislation and clamped down on undocumented immigrants — actions that have furthered mass incarceration and detention, and led to more profitability for companies that operate private prisons and detention facilities. Shortly after President Joe Biden assumed office, he issued an executive order forbidding the renewal of private prison contracts but did not cancel existing contracts or eliminate immigrant detention centers used by the Department of Homeland Security.

The prison stocks also received a shot in the arm following "Big Short" investor Michael Burry's bet on these stocks. His firm Scion Capital Management opened a new position in Geo Group in the second quarter of 2022 and followed it with the addition of CoreCivic in the third quarter. At the end of the fourth quarter, a scan of Burry's holdings revealed that he had dumped CoreCivic but held onto Geo Group, which accounted for a quarter of his portfolio.

Another contributing factor to the rise of prison stocks last year was the public's fear of rising crime. 

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Spotlight Back On Prison Stocks? For some time, Trump's potential arrest has been the subject of public discussion. On Saturday, the former president himself ranted about the inevitable happening in connection with the Manhattan District Attorney’s Office’s investigation into a hush-money payment made to adult film actress Stormy Daniels.

“Protest, take our nation back,” Trump wrote on his platform Truth Social media. The rallying cry was reminiscent of his call ahead of the Jan. 6 Capitol Hill insurrection that led to large-scale violence, protests and arrests.

City, state and federal law enforcement agencies in New York City are now on high alert for a possible Trump indictment, CNN reported.

While Trump's potential arrest has spurred conjectures of possible time in prison, his candidacy for the presidency, along with modest support from Republicans, may be a positive sign for prison stocks.

In addition, Burry, who correctly predicted the 2008 recession and its impact, has been warning of another economic slump through cryptic tweet. If his prediction comes true, it could mean a boost for prison stocks, which are largely recession-proof. 

Moreover, the valuations of prison stocks has become attractive due to a recent sell-off. CoreCivic, which was included in Wedbush’s “Best Ideas” List released earlier this month, received an "Outperform" rating and a price target of $15 price, suggesting an upside of about 67%.

Read Next: Stock Wars: CoreCivic Vs. Geo Group

Photo: Shutterstock

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