Why Corrections Corporation of America Broke Out a 60% Gain Today -- The Motley Fool

Prison Handcuffs Handcuffed Jail
Image source: Getty Images.

What happened

One of the more curious results of Tuesday's Presidential Election is the explosive breakouts at for-profit prison companies Corrections Corporation of America (NYSE:CXW) and, to a lesser extent, the less-obviously named prison company The GEO Group (NYSE:GEO). At one point Wednesday morning, Corrections Corp. stock was up nearly 60%, while GEO Group topped out at a 35-point gain. Even after some of the enthusiasm subsided, Corrections Corp. was still trading up 37% as of 11:20 a.m. EST, with GEO Group up 17%.

So what

This is curious, inasmuch as over the course of his campaign, President-elect Donald Trump never said much about the for-profit prison industry. True, he's advocated for deporting millions of illegal aliens from the United States. True, too, such hypothetical deportees would probably need to be confined somewhere during deportation proceedings -- and for-profit prisons might be one such locale. But the end game for deportation is, ultimately, getting folks out of prison, and out of the country entirely, which one imagines wouldn't be great for the prison business.

Most likely, for-profit prisons investors' enthusiastic response to Trump's victory stems from a belief that he will reverse President Obama's decision to phase out the use of for-profit prisons by federal inmates of the Department of Justice. Hillary Clinton, had she been elected, was expected to follow through on this plan. President-elect Trump is apparently now expected to reverse that policy, and expand the use of for-profit prisons.

Now what

With no promises either way having emanated from the President-elect, for-profit prison investors' reaction to his election seems premature. There's really no way to know which way he will decide on the issue. And given that, the wisest course of action would be to take the quick profits that have been offered on Corrections Corp. and GEO Group stock, and run with them.

There will be plenty of time to get back in, if and when we learn Trump's actual intentions.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he currently ranks No. 336 out of more than 75,000 rated members.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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