Please ensure Javascript is enabled for purposes of website accessibility

Why CoreCivic and the GEO Group Both Rallied Over 10% Today

By Reuben Gregg Brewer - Jan 27, 2021 at 2:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The news out of Washington D.C. was bad but perhaps not as bad as some investors feared.

What happened

Shares of prison operators CoreCivic (CXW 4.58%) and The GEO Group (GEO 4.17%) rose 11% and 12%, respectively, in early trading on Jan. 27. That said, both stocks are off dramatically over the past year. There's a connection here.  

So what

Both CoreCivic and The GEO Group do something that the government could, and often does, do itself: operating prisons. Hiring private companies to do this work has come under increasing scrutiny, pushing the shares of these companies notably lower over the past year. CoreCivic's stock is down 57% and The GEO Group is off by 48% over that span. The concern isn't unreasonable, noting that The GEO Group has lost two government contracts in three months. But the biggest fear of late has been that the new administration in Washington D.C. would act to curtail the outsourcing of the U.S. jail system.  

An arm pointing to a graph on a computer screen.

Image source: Getty Images.

That fear actually did come to fruition with an executive order from the new president calling on the Justice Department to curtail its use of private prison operators. The interesting thing is that the order didn't include the Department of Homeland Security, which controls U.S. Immigration and Customs Enforcement (often shortened to ICE) -- a heavy user of outside prison contractors. Also, contracts currently in place would likely need to roll off before they are canceled, meaning there's some lead time before these companies feel the full hit. In the end, it appears that the order will impact GEO and CoreCivic's operations less than investors had, perhaps, feared. Now that Wall Street has had some time to think a little more about the situation, the stocks rebounded a little.  

Now what

There's no doubt that CoreCivic and The GEO Group are facing material headwinds right now, largely of the political variety. Politics is part of the game, however, when you count the government as your largest customer. Long-term investors looking at the big price moves today, meanwhile, should think carefully about the political environment and make sure they fully understand each of these companies before considering buying either of these stocks.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CoreCivic, Inc. Stock Quote
CoreCivic, Inc.
$12.10 (4.58%) $0.53
The GEO Group, Inc. Stock Quote
The GEO Group, Inc.
$7.00 (4.17%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.