Last year, I bought some prison stock. It was just for research, I told myself as I linked my checking account to the online brokerage firm that promised a fast and easy transaction. I was working on a story about the economics and politics of criminal justice.
What better way to understand the prison economy than to own a piece of it myself?
There are only two publicly traded prison companies on the New York Stock Exchange (NYSE): Corrections Corporation of America (CCA, or CXW on the NYSE Big Board) and the GEO Group (GEO), which together account for about 70 percent of the for-profit prison sector nationwide. CCA is strictly domestic, while GEO runs about 85,000 prison beds here and abroad. Plus, the GEO homepage has a real-time stock ticker, links to SEC filings, and other shiny lures for a rookie prospector like me.
I bought 30 shares of GEO Group stock for a little less than $1,000—enough to make the exercise real. I clicked through a few steps, handed over my social security and routing numbers, and joined the community of shareholders invested in sustaining and expanding the American corrections system.
Initially, my stock purchase triggered waves of anxiety. My first concern was financial—did I just fritter away money that could have been spent on health insurance or to fix my car? Second, had I crossed a clear moral line? My personal interest now runs parallel to the perverted logic of mass incarceration. Amid social unrest and unrelenting evidence of racially-biased police brutality and an unequal application of the law, my bottom line only asks for more.
"We believe that shares of GEO are undervalued" wrote Sterne Agee CRT Research in their January 2014 report, "Crime Pays & Geo is Inexpensive; Buy." The Connecticut-based analyst group explained how state and federal governments are "reluctant and unwilling" to fund new public prison construction, and that every major prison built in the last five years has been a private operation.
Financial experts worth their salt will tell you that it's always a bad idea to invest heavily in any single stock. No one can predict the future, and it's safer to diversify. Any number of factors could cut into GEO Group profit: falling crime rates, a truce in the war on drugs, real criminal justice reform. Fortunately for investors like me, the corrections industry has considered all of these variables. In fact, the more I learned, the safer my investment seemed.
Prison companies are doing the diversifying for me, expanding their holdings beyond basic jail cells. In 2010, GEO bought Behavioral Interventions, the leading provider of electronic monitoring devices and ankle bracelets, and as Bloomberg reported, in 2013, CCA likewise acquired Correctional Alternatives, a rehabilitation firm that runs work furlough, house arrest, and residential reentry programs. They build temporary housing for immigrants caught on the southern border, and at the same time help states transition jails into federal facilities.
These corporations don't face the uncertainties of the free market, and don't describe themselves in terms of private-sector money machines. "We have a limited number of competitors in this market," CCA assured its shareholders in a recent annual report. About 90 percent of the company's revenue is government-sourced, much of that from non-compete bids, according to prison policy analyst Christopher Petrella. The majority of GEO and CCA facilities are funded by subsidies paid before a brick is laid.
This kind of government patronage provides shelter from even the harshest economic storms. As CCA CEO Damon Hininger told investors on a conference call in May 2010, "Between 2007 and 2009, when earnings for the S&P dropped by 28 percent, ours grew by 18 percent."
The industry often avoids words like private or for-profit. In marketing, political lobbying, and internal corporate communications, the preferred term is "partnership corrections." Prison companies match up with government entities short on cash and low on prison real estate. These include the Federal Bureau of Prisons (BOP), Immigration Control and Enforcement (ICE), the Department of Homeland Security (DHS), state and county jails, and various OTHER correctional services. The partnership binds the interests of the corporation (producing revenue and profits) with the goals of the state (finding a place for all those prisoners).
The relationship runs deep. The state and the corporations agree to turn their respective needs into shared goals. The best example of this are prison occupancy quotas, wherein the state agrees to provide a minimum number of offenders to the prison facility, and if it doesn't, taxpayers make up the difference.
In late 2014, my GEO stock surged on news that DHS needed additional housing for thousands of migrant children streaming across the southern border. As long as illegal immigration remains an urgent federal issue and the government is committed to housing migrants, no matter how prison-like the accommodations, my investment grows. Another financial analyst group published a report which predicted that even if prison populations fall nationwide, several market growth opportunities remain. Fifteen years ago, private prisons housed just 6 percent of the nation's convicts. Today, that figure is closer to 8.5 percent, and the analysts forecast an upward trajectory for the long haul.
Should I feel guilty, worried, or bullish? After peaking this past spring, GEO stock slumped back to my original buying price. I thought briefly about getting out. After all, criminal justice reform is national news now. Barack Obama's upcoming VICE interview from inside a federal facility in Oklahoma was the first of its kind for a sitting president, and in the past few months, CXW and GEO have taken a beating.
But analysts are bullish on the long-term outlook. The Obama Administration is fighting a federal court ruling to release families housed in prison facilities on the southern border.
"We remain encouraged by [GEO's] growth prospects," Sterne Agee CRT Research wrote in May. The bottom line hasn't changed: "It is more cost effective to privatize the management of prisons."
The price may drop, but long-term, when it comes to America's sprawling prison apparatus, Wall Street still has the same message: