Did Investors Mistreat CoreCivic Midweek?

 | May 19, 2017 | 10:00 AM EDT
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Wednesday's bloodbath was the worst day for markets since the Trump rally began following the November election. However, I again watched and listened in disgust as the talking heads, in their usual "bearer of bad news" delight, proclaimed it all but a disaster. The S&P 500 fell 1.8% on the day -- not comforting to investors given yet another round of political uncertainty, but it was just the second time year to date that the S&P 500 has been down more than 1%. That low level of market volatility is surprising.

The thing that got investors' goats, and what the media played to the hilt, was the Dow's 373-point drop. Boy, that sounds like a huge move, not all that far off from Black Monday's 508-point drop in 1987. That is, until you look at the denominator; the Black Monday Dow closed at 1728, while it closed at 20607 on "Weird Wednesday" -- a 22.6% drop versus a 1.8% decline.

The more interesting move on Wednesday, to me anyway, was the drubbing that private prison operators endured, with CoreCivic (CXW) and Geo Group (GEO) falling 10% and 8%, respectively. The private-prison business has been on a politically influenced roller coaster ride for months. Last August, late into President Obama's second term, CXW tanked after the Department of Justice announced that the Bureau of Prisons would phase out its use of privately run correctional facilities. While investors prematurely headed for the exits, the presumption of a Hillary Clinton presidency added fuel to the fire. Staunchly anti-private prison, Clinton was thought to be the end of the industry. That thinking was shortsighted, even without Trump's surprising victory, and created a great opportunity to pick up shares on the cheap. I did not take a position because I believed Trump would win. Shares were cheap on their own merit.

Trump's election breathed life back into CXW and the industry in investors' eyes, and shares rose more than 250% from early November to late February. Since topping out in February at $35, CXW has pulled backed about 12%, with nearly all of that damage occurring Wednesday. After such a wild ride, investors needed a reason to take some profits, and turmoil with Trump provided the opportunity, given the fear that his agenda will be sidelined.

Personally, I did not buy into investor fear and continue to hold CXW. It beat earnings expectations for the first quarter by four cents (63 cents a share versus 59 cents) with in-line revenue. Currently yielding 5.5%, I would like to see the quarterly dividend, which was cut from 54 cents to 42 cents in late 2016, raised, but time will tell on that front.

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