Heard of prison stocks? Here are 3 that exist on the US stock market

In India, the government is solely responsible to look after and maintain all jails in the country. But, in the US, the government enters into contracts with private companies that build and manage prisons privately. Since these companies are listed on the stock exchange, their stocks are called 'prison stocks' and this is how these companies work. 

Prison stocks are stocks of those companies that own and operate private prisons and jail detention facilities. The US government enters into contracts with these private companies to house arrested residents and immigrants. These companies own properties, provide prison management facilities in their properties and even manage some government prison facilities.  

How did this concept come into being? In the 1980s, 7,50,000 people were incarcerated in America and by 1997, the number rose to 17 lakh. This started when the US arrested a record number of people to stop drug crimes. But as the prison population grew, so did the costs of operating them. From the 1980s to 1997, the cost of operating prisons went up from Rs 24 crore to 143 crores. Since prisons became overcrowded, the government encouraged private players with the idea that private companies could build prisons faster and could also provide better facilities.

How do private prisons work? Private companies enter into contracts with the US government based on which the government pays a per bed cost to the companies for every inmate that is housed on their premises. The business model of private prison stocks includes: 

• Building and managing buildings
• Securing government contracts
• Charging a daily fee for each bed filled 

The profitability of private prisons depends on the number of facilities they provide and the number of inmates they house. The more, the better. 

Does the US leadership influence prison stocks? Yes. The perception is that US prison stocks don't do well when the US President is a Democrat. This perception began when former US President Barack Obama announced that his government would be ending contracts with private prisons which caused prison stock prices to fall.

When the Presidential elections debates between Trump and Clinton were on, prison stocks were constantly trading at low prices since many expected Clinton to win. But when Trump won the elections, share prices of prison stocks zoomed.

Two largest private prison companies' stock prices after Trump win. pic.twitter.com/17NJsXvz7C

— Loren Collingwood (@lorenc2) March 26, 2018

Prison stocks then remained at a high because the Trump administration's policies profited the prison industry. Trump's policies detained thousands of immigrants and imposed hard immigration policies like family separation. (Private prisons did not hold children of the detained families but only held parents). During Trump's administration, the popularity of private prisons even among the Democrats fell. There was a public backlash that led 9 banks like JP Morgan to announce divestment from the prison industry. When Joe Biden won the Presidential elections, prison stocks fell again.

🚨Today notorious private prison company @GEOGroup's stock price dropped to 7-yr low, even lower than when Pres. Obama moved to end use of private prisons.

HUGE testament to grassroots resistance nationwide, even as Trump tries to boost the industry. #BackersofHate #ShutDownGeo pic.twitter.com/92Mhjpg9vb

— Daniel Altschuler 🦋 (@altochulo) December 11, 2019

3 prison stocks US investors can invest in:

1. CoreCivic: CoreCivic is a prison stock that provides detention operation services and owns over 100 prisons and correctional facilities

2. Serco: Serco provides 5 main services in prisons: health, transport, citizen services, justice, immigration, and defense. 

3. The GEO Group: The GEO Group is a real estate investment company that invests in prisons and mental health properties all over the world. The company has a commitment of getting their patients and inmates healthy, and clean and offers them help after they leave.