The Trend

The Trump Effect: The Golden Age of Prisons

“We need to end private prisons.  Protecting public safety and should never be outsourced or left to unaccountable corporations.”

That’s what Democratic presidential candidate Hillary Clinton tweeted in 2015, wiping out millions in value off another industry in just weeks.  CoreCivic Inc. (CXW) lost $200 million in value. GEO Group Inc. (GEO) lost close to $100 million.  Investors overreacted. The press warned of fallout.

Then in the final months of the Obama Administration, the Justice Department announced it would end the use of private prisons. Sally Yates, the former deputy attorney general even directed the Bureau of Prisons to withdraw or decline contracts for private prison operators, noting they compared poorly.  As a result, shares of GEO would sink to less than $20 a share.  CXW fell to less than $14 from $33. 

It was devastating. 

But it also created the buying opportunity of a lifetime for crisis investors.

Then, just days into the new Trump Administration, the Obama rule on such prisons was cut.  U.S. Attorney General Jeff Sessions rescinded the order and has decided not to phase out the use of private prisons by the federal government.  Since then, GEO has rocketed to a high of $49 a share, more than doubling since the election. CXW soared to $35.

But that’s not the only reason these stocks have soared.

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Trump has also promised to crack down on crime and illegal immigration as well with traders taking that as a bullish sign for prisons.  “We’re getting really bad dudes out of this country, and at a rate that nobody’s ever seen before,” noted Trump.

And up went the prison stocks with little likelihood of immediate term downside.

In fact, just last week, the Department of Homeland Security (DHS) issued sweeping new programs to carry out Trump’s executive orders on immigration, which will require that all federal agents identify, capture and deport undocumented people.  That would also require the use of private prisons.

In addition, the DHS is trying to hire another 10,000 new immigration officers and more than 5,000 border control agents to capture illegal immigrants.  They’re also asking for more money to fund even more detention facilities to hold every one.

Crisis again became a buying opportunity for smart investors.