The United States of America has the highest incarceration rate of any industrialized nation. According to the Bureau of Justice Statistics (BJS), the USA has an incarceration rate of 754 per 100,000 people (as of 2009) this equates to 2,266,832 prisoners from a total population of 310.64 million. The United States makes up just 5% of the global population, but accounts for 25% of the global prison population. The incarceration rate in the U.S. is disproportionately high compared to other countries, but I am not here to discuss the social ramifications of mass imprisonment.
A great company I have been observing is Corrections Corp Of America (NYSE:CXW). This stock has been around since 1983 and closed at $38.13 March 18, 2013. To give you a little history of this company we can go back in time to 1983 when the U.S. government under the Ronald Reagan administration allowed privatization of the prison system.
Picking profitable stocks
The first thing I do when selecting a prospective stock to purchase is to look at the demand for the present product or service. The demand for CXW is viable for present day America. Crime rates are not increasing, but the incarceration rate for non-violent crimes is. According to the Bureau of Justice Statistics (BJS) violent crime has decreased between 1990 and 2011; however, as many as 7 million people are circulated throughout the penal system.
The second thing I check on my list is the future growth and demand for the companies I invest in. As mentioned before violent crime rates have decreased but this has not stopped Corrections Corporation of America (CCA) from lobbying congress to introduce stricter laws for non-violent offenders. CCA was founded in 1983 by Tom Beasley, Doctor Robert Crants, and T. Don Hutto. The reason for the high incarceration rate in the U.S. is unreasonable laws for non-violent crimes, for example marijuana or cocaine found in small quantities on the person, quantities distribution. In order to increase market capitalization the more people imprisoned innocent or not the more workforce is available to produce goods and services that can be sold for high retail prices that were produced by prisoners.
There are currently 37 states in the U.S. where privatization of prison labor for corporate profits is sanctioned. I hypothesize the prison population will increase. The average prison laborer earns $1.00 or less per hour. Cheap labor or low overhead equals high rates of return for products and services. The U.S. prison population will continue to increase, big corporations in the private prison industry simply find the manufacturing of goods and services cheaper than shipping jobs overseas. This is an optimistic outlook for CCA with a current P/E ratio of 24.12 and a 52 week trading range from $24.74 to $39.31
The outlook for the future of CCA is optimistic with more correctional facilities being built for the growing prison population. CCA also designs, manages and operates these private facilities. Growing demand for products and services should translate into ongoing future profits and longevity for CCA.
Prison Slave Labor Joint Ventures
The slave labor of prison work programs is incentive for corporate stakeholders to lobby for longer prison terms and higher incarceration rates for non-violent crimes. I thought slavery was over, but once again I have been corrected. Wall St. is behind the growing incarceration rate in U.S. prisons and their direct influence in lobbying Congress for more draconian laws for non-violent offenders.