5 Best Prison and Law Enforcement Stocks To Buy Now

In this article, we discuss the 5 best prison and law enforcement stocks to buy now. If you want to see more stocks in this selection, go directly to the 11 Best Prison and Law Enforcement Stocks To Buy Now.

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.

Follow Insider Monkey on Twitter