Billionaire Rob Citrone’s 10 Small-Cap Stock Picks with Huge Upside Potential

2. Geo Group Inc. (NYSE:GEO)

Discovery Capital Management’s Stake: $51.47 million

Number of Hedge Fund Holders: 39

Market Capitalization as of May 8: $3.92 billion

Average Upside Potential as of May 8: 69.68%

Geo Group Inc. (NYSE:GEO) owns, leases, operates, and manages secure facilities, processing centers, and community-based reentry facilities. It operates through 4 segments: US Secure Services, Electronic Monitoring & Supervision Services, Reentry Services, and International Services. It also provides facility management services, such as the provision of security, rehabilitation, and food services.

The stock is rated as a Buy at Jones Trading with a $55 price target. The company’s Secure Services segment, which includes owned and leased facilities, improved its revenue by ~3% year-over-year in Q4 2024 and contributed to the overall quarterly revenue of ~$608 million. This segment is growing due to the demand from Immigration and Customs Enforcement/ICE and the US Marshals Service.

GEO is expanding its detention capacity for ICE, which includes an anticipated $70 million investment ($9 million incurred in 2024, with $38 million planned for 2025) to renovate existing idle facilities. This is expected to create ~17,000 incremental detention beds, which would increase GEO’s total available capacity for ICE detention from ~15,000 beds to ~32,000. These additional beds could generate between $500 and $600 million in incremental annualized revenues.

River Road Small Cap Value Fund stated the following regarding The GEO Group, Inc. (NYSE:GEO) in its Q4 2024 investor letter:

“The holding with the highest contribution to active return in the portfolio during Q4 was The GEO Group, Inc. (NYSE:GEO), an owner and operator of private prisons for federal, state, local, and foreign governments. GEO rallied significantly after the U.S. election victory of President Trump and the Republican majority in the House and Senate. GEO is poised to play a large role in President Trump’s top agenda item of mass deportation of undocumented immigrants. Given the estimates of roughly 11 million to 13 million undocumented immigrants crossing the border during the Biden administration, the resources required for deportation will be enormous. The demand for detention beds should greatly exceed the available supply for several years. We expect GEO’s largest customer, Immigration and Customs Enforcement (ICE), will take all available GEO detention beds for the foreseeable future. Additionally, GEO’s electronic monitoring segment has held the exclusive contract for ICE’s Alternatives to Detention program for 15 years. This is GEO’s highest margin segment, and we expect a substantial increase in electronic monitoring usage. We trimmed the position.”