• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Corrections Corp. of America: Value Investing for the Strong of Stomach

It does not get any messier than putting money into a controversial company in a controversial industry.
By JONATHAN HELLER
Oct 14, 2016 | 11:00 AM EDT
Stocks quotes in this article: CXW, GEO

One of the more controversial elements of value investing is the purchase of distressed, or simply overstressed, names -- those that seemingly have been over-punished by the market. This is fraught with risk, and not for those with a weak stomach.

Earlier this week, I took a position in such a name, but this one brings with it even more controversy due to the nature of its business. Corrections Corp. of America (CXW) is one of the nation's largest owners of private correctional facilities. Now, "prisons for profit" have been extremely controversial, and this company in particular has a long but complicated history. As I wrote in June, it nearly imploded in the 2000-2001 era after converting to a REIT structure. In 2012, the company gave it another go as a REIT.

CXW shares plunged 35% on Aug. 17, when the Department of Justice announced that the Bureau of Prisons would phase out the use of privately run correctional facilities. This announcement did not affect other federal-related private prison contracts. However, it fits the political narrative espoused by the current administration and presidential candidate Hillary Clinton, who vehemently opposes for-profit prisons -- a stance that may be putting more pressure on the stock as Election Day approaches.

Interestingly, just weeks after the Aug. 17 announcement, the Bureau of Prisons extended a contract with operator The GEO Group (GEO) to run a 1,900-bed correctional facility for an additional two years. Extricating itself from the reliance on the private sector may be easier said than done, especially with a $20 trillion national debt and still-wide budget deficits.

Bureau of Prisons contracts represent just 7% of CWX's revenue, and while it appears the market overreacted to the news, the controversy is unlikely to end soon. At the state level, given still-strapped budgets, it is difficult to fathom an end to privately run prisons. States likely will continue to sign on with private operators as a cost-cutting move.

CXW does have considerable debt, at $1.45 billion. However it also has considerable real estate assets, owning or controlling 66 facilities. Granted, that's not prime real estate, but there is value there nonetheless.

While the stock currently yields around 16%, I fully expect that a cut is coming, and took a position with that opinion. CWX is already in cost-cutting mode, reducing headcount, and CEO Damon Hininger has forfeited $2 million in restricted stock units awarded in 2016.

It does not get any messier than a controversial company in a controversial industry. This is not the type of company to go all-in on; if you have the stomach for it, staggering into a position may be warranted. In addition, the next several weeks could be extremely volatile given the coming election, the results of which could provide even more headline risk.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Heller was long CXW

TAGS: Investing | U.S. Equity | Politics

More from Investing

Lesson of the Day: One Man's 'Junk' Is Another Man's Momentum Stock

James "Rev Shark" DePorre
Feb 24, 2021 4:57 PM EST

Stock pickers are back, and they working on short squeezes again.

Precious Metal Name Penoles Comes With Peril

Bruce Kamich
Feb 24, 2021 2:14 PM EST

Our series on metals continues with Industrias Penoles from Mexico, and it's only for experienced traders.

There's a Green Day Coming in Apple

Mark Sebastian
Feb 24, 2021 1:56 PM EST

These calls are going to end up in the money.

Shark Bites: Using Game Theory to Trade the New Soaring Eagle SPAC

James "Rev Shark" DePorre
Feb 24, 2021 1:50 PM EST

This game being widely played right now is part of the reason it is so easy for new SPACs to keep raising money.

QuantumScape May Pressure Longs in the Weeks Ahead

Bruce Kamich
Feb 24, 2021 1:40 PM EST

Time to review the charts and indicators.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:36 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 2/24/2021

    SPX (Long-Term View) The 2/16 HIGH @ 3950.43 is ...
  • 08:30 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 2/23/2021

    SPX (Long-Term View) The 2/16 HIGH @ 3950.43 is ...
  • 04:52 PM EST CAROLYN BORODEN

    WMT Updated

    View Chart » View in New Window » Since we vio...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login