11 Best Prison and Law Enforcement Stocks To Buy Now

In this article, we discuss the 11 best prison and law enforcement stocks to buy now.

According to the Council of Criminal Justice (CCJ), the rate of violent crimes as of August 2022 is still higher than the pre-pandemic levels. The homicide rates have increased by 40%, while car theft and robberies are up 15% and 19%, respectively, this year as opposed to 2021. This has caused the US Congress to roll out a $37 billion budget to improve policing and ensure crime prevention. Around $13 billion will be invested in the next five years to recruit 100,000 police officers across the US. The bill will also focus on community policing which is considered an integral part of developing better relations with the local population by the Biden Administration. The Safer America Plan also intends to invest $1 billion to train police officers with a focus on accountability and transparency.

State governments have invested $350 billion, allocated by the US Federal Government under the American Rescue Plan Act (ARPA) in March 2021, to stimulate the economy following the impact of the COVID-19 pandemic. Data shows that over $25 billion have been diverted toward police and prisons. The significant flow of funds is being considered a positive development for some of the best prison stocks like Palantir Technologies Inc. (NYSE:PLTR), CACI International Inc (NYSE:CACI), and Axon Enterprise, Inc. (NASDAQ:AXON).

It must be noted that the Biden Administration has barred the US Federal government from giving out new federal contracts to private prison companies through an Executive Order. However, it is not expected to have a significant impact on the best prison stocks as they generate less than 25% of their revenue from the contracts of the US Bureau of Prisons (BoP) and US Marshals. Furthermore, the impact of this Executive Order will take years to come to fruition.

Our Methodology

We have shortlisted stocks with strong growth prospects and solid business fundamentals. These companies are expected to generate strong returns as the market turns bullish in the future. We have also included the analyst ratings outlining the market sentiment on these companies. Insider Monkey’s database of 895 hedge funds as of Q2 2022 was used to rank these stocks.

Best Prison and Law Enforcement Stocks To Buy Now

11. ShotSpotter, Inc. (NASDAQ:SSTI)

Number of Hedge Fund Holders: 7

ShotSpotter, Inc. (NASDAQ:SSTI) is a Freemont, California-based provider of precision policing technology through its gunshot detection, gun crime management, search engines for investigations, case management, and community-first patrol management solutions.

Erik Suppiger at JMP Securities upgraded ShotSpotter, Inc. (NASDAQ:SSTI) stock from a Market Perform to an Outperform rating with a target price of $42 on October 17. The analyst thinks that the demand for the flagship service offered by the company has increased significantly due to the rising rate of gun-related crimes. Suppiger anticipates ShotSpotter, Inc. (NASDAQ:SSTI) to experience an expansion of margins in the coming years due to an improvement in investor sentiment as inaccurate reports regarding the company in the media have been reduced. Furthermore, the analyst thinks ShotSpotter, Inc. (NASDAQ:SSTI) has added numerous products to its portfolio that should encourage growth and diversify the company’s sources of revenue in the future.

The cash flow valuation of ShotSpotter, Inc. (NASDAQ:SSTI) is also favorable, making analysts consider it one of the best prison stocks. The price/cash flow ratio for the stock stands at 9.8 currently, significantly below the industry median of 16. The company has been generating strong operating cash flows since 2019.

Renaissance Technologies raised its stake in ShotSpotter, Inc. (NASDAQ:SSTI) by 30% during Q2 2022.

10. Cohu, Inc. (NASDAQ:COHU)

Number of Hedge Fund Holders: 8

Cohu, Inc. (NASDAQ:COHU) is a Poway, California-based company that caters to the demand of the law enforcement industry by providing microwave communications equipment and antenna systems. This equipment transmits audio and video through the medium.

Cohu, Inc.’s (NASDAQ:COHU) non-GAAP forward earnings multiple stands at 10.05 as of October 20, reflecting a significant discount to its 5-year average of 24.48. Additionally, the company’s recurring income divisions are still expanding due to better-installed systems and improved semiconductor product designs. These segments are likely to boost the margins of the business in the future. The major recurring business of Cohu, Inc. (NASDAQ:COHU) contributed over 42% to Q3 revenue at a non-GAAP gross margin of 54%. This reflects a three-year CAGR of 6.5%.

Recurring revenue in the most recent four quarters totaled $336 million, or 41% of turnover, providing a lucrative and reliable revenue stream despite market fluctuations. In the last eight quarters, Cohu, Inc. (NASDAQ:COHU) has surpassed revenue estimates on five occasions and adjusted EPS forecast six times. The company’s solid historic performance makes it one of the best prison stocks in the industry right now.

As of Q2 2022, Cohu, Inc. (NASDAQ:COHU) was held by 8 hedge funds.

9. Federal Signal Corporation (NYSE:FSS)

Number of Hedge Fund Holders: 9

Federal Signal Corporation (NYSE:FSS) is an Oak Brook, Illinois-based provider of law enforcement solutions through its accessories, such as perimeter lights, push bumpers, stingers, and speakers.

In a research note issued on October 7, Michael Shlisky at DA Davidson upgraded Federal Signal Corporation (NYSE:FSS) stock from a Neutral to a Buy rating and increased the target price from $39 to $46. The analyst made the update following the Industrials conference, along with a follow-up call with the entity’s management. Mr. Shlisky believes that a company that relies on government contracts remains attractive during a recession. The analyst anticipates Federal Signal Corporation (NYSE:FSS) to maintain pricing when commodity prices normalize, and this can provide an upside in the future, attracting more investor attention to one of the best prison stocks.

On October 25, Federal Signal Corporation (NYSE:FSS) declared a quarterly dividend of $0.09 per share, translating into an annual forward dividend yield of 0.81%. The company also shared that it had replaced its previous $500 million credit facility with an $800 million facility, which consists of a $125 million five-year term loan arrangement and a $675 million revolving credit facility.

GAMCO Investors was the leading hedge fund investor in Federal Signal Corporation (NYSE:FSS) as of Q2 2022.

8. Cadre Holdings, Inc. (NYSE:CDRE)

Number of Hedge Fund Holders: 10

Cadre Holdings, Inc. (NYSE:CDRE) is a Jacksonville, Florida-based provider of safety and survivability products for first responders, federal agencies, and other protection markets. Some of the products produced by the company include duty gear, armor, and communication devices.

On September 6, Ronald Epstein at Bank of America initiated coverage on Cadre Holdings, Inc. (NYSE:CDRE) stock with a Buy rating and a target price of $30. The analyst believes that the company can generate strong free cash flows and margins by consolidating its opportunities. Epstein anticipates Cadre Holdings, Inc. (NYSE:CDRE) to expand the scope of its products, which is considered the primary source of its top line. The company can either do this through acquisitions or organic growth. The recent acquisitions are expected to contribute 9% to Cadre Holdings, Inc.’s (NYSE:CDRE) 2024 EPS. Experts believe that Cadre Holdings, Inc. (NYSE:CDRE) provides unique exposure to the law enforcement market and offers a stable revenue base with increasing budgets for police, making it one of the best prison stocks.

Here’s what Brasada Capital Management said about Cadre Holdings, Inc. (NYSE:CDRE) in its Q2 2022 investor letter:

“Cadre is another recent addition. We became familiar with the company in December but were unable to build much of a position as the stock ran up. The company recently issued equity in a secondary offering that was poorly received, and the price declined to where it was when we first discovered it. We were able to take advantage of the sell-off and purchase shares. Patience can pay off.

This is a scenario where we are betting on the jockey to build a compounder. In 1996 Warren Kanders bought a tiny company body armor company in Florida that was generating $11M in revenue. This was the seed of Armor Holdings, which eventually went public and was sold to BAE Systems in 2007 for $4.5B. In 2012 BAE sold back to Kanders the body armor and holster business. Kanders has been building the business, which is now called Cadre Holdings, and he took the company public in August of 2021. Kanders is the Chairman and CEO. He still owns almost 50% of the stock…” (Click here to see the full text)

7. The GEO Group, Inc. (NYSE:GEO)

Number of Hedge Fund Holders: 17

The GEO Group, Inc. (NYSE:GEO) is a Boca Raton, Florida-based provider of correctional and community reentry services through its private prisons and mental health facilities worldwide.

The US has the biggest prison population in the world, with the facilities in the country catering to over 25% of the global prison population. The US also has one of the highest rates of repeat offenders, as 44% of convicts re-offend during the first 12 months out of prison. These trends reflect the presence of a strong market for the company’s services. The GEO Group, Inc. (NYSE:GEO) stock is trading at a very attractive valuation with a forward P/E multiple of 6.43x as opposed to the sector median of 15.57x. Meanwhile, the EV/EBITDA multiple of 7.39x reflects a discount of over 35% from the sector median.

The GEO Group, Inc. (NYSE:GEO) announced its Q3 2022 results on October 27. The company reported an adjusted fund from operations (AFFO) of $0.60, beating the analysts’ estimates by $0.27. Furthermore, The GEO Group, Inc. (NYSE:GEO) observed its revenue increase by 10.7% YoY to $616.7 million. The company also increased its full-year adjusted EBITDA guidance for 2022. These fundamentals make The GEO Group, Inc. (NYSE:GEO) one of the best prison stocks to invest in.

The GEO Group, Inc. (NYSE:GEO) stock also has the distinction of having the renowned investor Michael Burry as one of its leading hedge fund investors as of Q2 2022.

6. CoreCivic, Inc. (NYSE:CXW)

Number of Hedge Fund Holders: 17

CoreCivic, Inc. (NYSE:CXW) is a Nashville, Tennessee-based company that is the biggest owner of correctional, detention, and residential reentry facilities in the US, with an experience of over 35 years.

CoreCivic, Inc. (NYSE:CXW) is also the biggest owner of real estate under the use of government agencies. Following the executive order forbidding Federal authorities from entering into a contract with private prison companies, CoreCivic, Inc. (NYSE:CXW) is finding new tenants for its properties to sustain growth levels. CoreCivic, Inc. (NYSE:CXW) firmly believes that there is a shortage of beds in the US correctional system that will ensure that its services will remain in high demand moving forward.

CoreCivic, Inc. (NYSE:CXW) is currently trading at a price-to-earnings ratio of 13.07 times earnings, which is significantly lower than the average of 20.20 times earnings for the 500 stocks on the S&P 500 index. Analysts expect the company’s earnings per share to rise by 17% during 2023, making it one of the best prison stocks to buy now. At this level of earnings, CoreCivic, Inc. (NYSE:CXW) has been assigned a target price of $13.05 per share, reflecting an upside of 36% as of October 27.

In addition to CoreCivic, Inc. (NYSE:CXW), stocks such as Palantir Technologies Inc. (NYSE:PLTR), CACI International Inc (NYSE:CACI), and Axon Enterprise, Inc. (NASDAQ:AXON) are also considered among the best prison stocks.

5. CACI International Inc (NYSE:CACI)

Number of Hedge Fund Holders: 22

CACI International Inc (NYSE:CACI) is a Reston, Virginia-based provider of IT solutions to numerous federal government entities, including law enforcement agencies.

In 2021, CACI International Inc (NYSE:CACI) acquired Bluestones Analytics to aid law enforcement agencies in monitoring the Dark Web and help them highlight threats through the data collection mechanism. CACI International Inc (NYSE:CACI) received the Gold Edison Award for its DarkBlue Intelligence Platform in April 2022. Analysts think CACI International Inc (NYSE:CACI) has a long history of consistently adding value and increasing free cash flow per share. At 2.5x net, the company’s balance sheet is almost under-leveraged, giving room for future acquisitions and share repurchases.

Upslope Capital Management discussed its outlook on one of the best prison stocks in its Q3 2022 investor letter. Here’s what the firm said:

“CACI International Inc (NYSE:CACI) provides specialized technology and consulting services, primarily to U.S. defense and intelligence agencies. The U.S. Army is CACI’s single largest customer. This position replaces BWXT in Upslope’s “defense basket” (articulated in Q1 on p. 4). CACI’s business is mostly split across Expertise (providing talent to government agencies – e.g. software engineers) and Technology (design and delivery of specific technology-oriented services and products, including for example, battlefield hardware). The company offers its services and products in support of both day-to-day agency operations and specific missions.

At a high-level, CACI reminds me of another Upslope long in an unrelated sector: Silgan Holdings (packaging/dispensing and food can business). Both are truly sleepy value stocks that trade for low doubledigit earnings multiples, but have a strong history of steady value creation and free cash flow per share growth. Both the stocks and underlying businesses appear very well-positioned for the uncertain macro (or geopolitical, in CACI’s case) environment we’re likely to face in the years ahead. Other notable thesis points for CACI specifically:

1. Long-term Geopolitical & Other Tailwinds – like other components of Upslope’s defense basket, CACI should benefit from an attractive defense spending environment for years to come. CACI should also benefit from IT modernization efforts in U.S. government agencies, as well as its strength in cyber/electronic warfare offerings…” (Click here to read the full text)

4. Palantir Technologies Inc. (NYSE:PLTR)

Number of Hedge Fund Holders: 26

Palantir Technologies Inc. (NYSE:PLTR) is a Colorado-based provider of big data analytics solutions. Palantir Gotham is a leading decision operating system used by law enforcement agencies. It is adopted and employed by police authorities in the US, Canada, Germany, and many other countries.

In March 2022, Germany’s Bavarian Criminal Affairs Bureau signed a five-year agreement worth $26.2 million that will provide all German law enforcement agencies access to two leading tools of Palantir Technologies Inc. (NYSE:PLTR). Governments across Europe have increased their defense expenditure since the start of the conflict between Russia and Ukraine in late February 2022. In the US, the Los Angeles Police Department (LAPD) uses Palantir Gotham to merge data from various sources.

According to consensus projections, Palantir Technologies Inc.’s (NYSE:PLTR) revenues should increase to about $2.4 billion in 2023 and about $3 billion in 2024. Palantir has a fairly lengthy growth runway and can expand its revenue by 25–30% YoY through 2030. The stock is trading at less than five times its 2024 revenue expectations, which is very inexpensive for a hyper-growth firm. These fundamentals make Palantir Technologies Inc. (NYSE:PLTR) one of the best prison stocks in the market.

3. Axon Enterprise, Inc. (NASDAQ:AXON)

Number of Hedge Fund Holders: 26

Axon Enterprise, Inc. (NASDAQ:AXON) is a Scottsdale, Arizona-based company focused on providing public safety through its smart weapons, cameras, and software solutions.

On September 15, Tim Long at Barclays initiated coverage on Axon Enterprise, Inc. (NASDAQ:AXON) stock with an Overweight rating and a target price of $147. The target price reflects a modest potential upside of over 12.5% from the closing price as of October 27. The analyst believes that Axon Enterprise, Inc. (NASDAQ:AXON) is a “unique” provider of hardware and software solutions to the public safety market. The company is in a strong position to deliver revenue growth in the high-teens percentage and gross margins of more than 60% in the coming quarters. Furthermore, Axon Enterprise, Inc. (NASDAQ:AXON) is also expected to generate strong operating cash flows due to its growth plans, making it one of the best prison stocks to hold now.

Here’s what Baron Funds said about Axon Enterprise, Inc. (NASDAQ:AXON) in its Q1 2022 investor letter:

“Axon Enterprise, Inc. (NYSE:AXON) is a public safety-oriented company that sells its products to governments and law enforcement agencies around the world. Its mission is to “…make the bullet obsolete” using non-lethal TASER® devices combined with digital cameras, cloud-based software, and virtual reality training. This array of technology aims to provide better relationships between law enforcement and its constituent communities, and to reduce fatal outcomes dramatically when stressful confrontations occur. Axon takes its mission seriously and has an extensive ethics committee that includes members of law enforcement and activist communities. Axon claims that with usage of body cameras, complaints against police departments are down 88% and use of force is down 58%. We believe the company is a premier part of the solution to prevent bad actors in law enforcement and the mistrust that has resulted from those bad actors.

The company has three major product lines: first, high-definition cameras (sensor division) worn on the body or mounted on vehicles (newer products incorporate live streaming and automated license plate readers); second, subscription-based digital evidence software (evidence.com) that stores body camera and third-party video allowing for evidentiary chain of custody, search, and report writing (officer court time reduced by 70%); and third, non-lethal TASER devices (that can temporarily incapacitate dangerous and violent actors using an electrical shock) that save lives by avoiding discharging firearms (the company claims 258,000 lives have been saved so far). When used in combination, its cameras provide GPS officer location and live streaming, while its software can provide real-time operations mapping of active situations. In the future, Axon seeks to add consumer safety products (launching in 2022) that will automatically notify 911 if deployed, drone-based camera products, more VR training, and additional cloud-based software, including evidence software usable by prosecutors and defense attorneys, which could be a $1 billion market on its own.

From a financial perspective, the company is really built upon recurring revenue – it is not a one-time device sales company. Software made up 28.5% of 2021 revenues. And while hardware made up 43% of 2021 sales, about two-thirds of that is now bundled under long-term deals, so really only about 15% of the company’s total revenue is one time in nature. The remaining 27% of sales is warranty and cartridge consumables, which are largely recurring as well. As software grows as a proportion of revenue (to what we believe will be over 40% by 2026), margins should expand. We believe that EBITDA margins can expand from 20% in 2021 to nearly 30% by 2026. Revenue growth, which was nearly 27% in 2021, should continue at over 20%, given that the company is less than 2% penetrated into its $52 billion addressable market. Finally, the company has over $400 million of cash and no debt on its balance sheet. When combined with its significant free cash flow (about 75% of EBITDA converts to free cash flow), Axon has significant capital to grow its business, complete accretive acquisitions, and potentially return capital to shareholders.”

2. Leidos Holdings, Inc. (NYSE:LDOS)

Number of Hedge Fund Holders: 29

Leidos Holdings, Inc. (NYSE:LDOS) is a Reston, Virginia-based provider of artificial intelligence, data analytics, and machine learning solutions to law enforcement agencies. The company is also a leading provider of people screening solutions at security checkpoints. Leidos Holdings, Inc. (NYSE:LDOS) is playing an integral role in the digital transformation of the services of UK police.

The company concentrates on securing sizable civil and government contracts. Due to Leidos Holdings, Inc.’s (NYSE:LDOS) substantial backlog of orders, revenue is highly predictable. Experts believe that the company is in a position to experience stability in profit margins over the coming quarters as projects start to move into the maturity phase. Analysts think Leidos Holdings, Inc. (NYSE:LDOS) is one of the best prison stocks as it is trading at a forward P/E ratio of 15, reflecting a discount of 5% to its 5-year average. The stock also offers a modest dividend yield of 1.50% as of October 27.

Of the 895 hedge funds in Insider Monkey’s database, Leidos Holdings, Inc. (NYSE:LDOS) was held by 29 funds as of Q2 2022.

1. Olin Corporation (NYSE:OLN)

Number of Hedge Fund Holders: 43

Olin Corporation (NYSE:OLN) is a Missouri-based renowned producer of ammunition, chlorine, and sodium hydroxide. The company has the distinction of being the biggest manufacturer of small ammunition in the world.

Duffy Fischer at Goldman Sachs initiated coverage on Olin Corporation (NYSE:OLN) stock with a Buy rating and a target price of $56 on October 13. The size of the global ammunition market stood at $22.35 billion at the end of last year and is expected to compound annually at an average rate of 3.2% between 2022 and 2030. The pandemic saw the entry of eight million new gun holders in 2020 and six million new gun holders in 2021. These trends are likely to provide an attractive growth opportunity to  Olin Corporation (NYSE:OLN), making it one of the best prison stocks to invest in.

Here’s what Voss Capital said about Olin Corporation (NYSE:OLN) in its Q4 2021 investor letter:

“Olin is a multi-segment business, with two segments in the chemicals industry (chlorine, caustic soda, and epoxy production) and a small segment in the ammunition industry. Unlike many chemical companies, we believe Olin has a few idiosyncratic catalysts that can potentially make the stock a core-sized position for us.

First, we believe the company has an underappreciated moat as the low-cost chlorine producer in North America. New CEO Scott Sutton has started to leverage that moat in the form of contract renegotiation and supply constraint (e.g., shutting down unproductive plants) to maximize the value of producing and storing a toxic gas like chlorine. Our current understanding is that incremental demand for both chlorine and caustic soda is set to significantly outstrip incremental supply and that any incremental supply will take years to build out and come online. We think OLN’s other chemical business, Epoxy, is in a similar position with a 5-to-7-year runway of low-cost production leadership, at scale, that will allow for substantial margin expansion. Additionally, a sale of the ammunition business could unlock significant added value – opening the door for investors interested in a chemical pure-play and concerned about ESG. Finally, a full 30% of the company’s chlorine production goes to Dow Chemical in the form of a very low-value, long-term contract that expires in 2025, something the CEO has suggested could be amended well before 2025, in a “cash accretive” way…” (Click here to see the full text)

You can also take a peek at the 10 Best Sporting Goods Stocks To Invest In and the Best Dow Jones Dividend Stocks To Buy.

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Disclose. None. 11 Best Prison and Law Enforcement Stocks To Buy Now is originally published on Insider Monkey.