​Trump Election Pumps Prison Stocks & Drains Gun Stocks

Bolton Flautt  |

Some interesting observations today after the election yesterday are the big jump in prison stocks and the decline in gun stocks after Donald Trump was elected in favor of Hillary Clinton. CoreCivic (CXW), which recently changed its name from Corrections Corporation of America, was the biggest winner I noticed having gained 50 percent in today’s session. The other big name in the prison stock category The GEO Group (GEO) gained more than 20 percent on the day’s session.

The U.S. has 5 percent of the world’s population, but 25 percent of the world’s prisoners, and the incarcerated population in the U.S. is a staggering 2.4 million – a 500 percent increase over the past 30 years.

In 2014, the average cost of incarceration of a federal inmate was nearly $31,000. After doing some quick math by using 2014 numbers, I calculated that approximately $74.4 billion is spent every year on the incarceration of inmates. That’s a staggering revenue pool and no wonder big names like Wells Fargo, Bank of America, Fidelity Investments, General Electric, and The Vanguard Group are some of the major investors in CoreCivic.

What does the election of Trump mean for private prisons? If you look at his platform of no tolerance concerning illegal immigrants and increasing stop-and-frisk policies by law enforcement, prison populations are sure to rise by significant numbers, and at $31,000 per inmate, that’s a pretty hefty return on investment considering that an estimated 11.4 million illegal immigrants live in the U.S. – representing a potential annual revenue stream of approximately $353.4 billion.

That’s certainly interesting to see how much investors are betting on prison stocks after Trump being elected the new President of the United States, but if one goes up another must come down I suppose so, why the big drop in gun stocks? Some big names and one small name to follow are Sturm, Ruger & Company (RGR) who was down nearly 15 percent; Smith & Wesson Holding Corp. (SWHC) who was down more than 15 percent on the day’s session; and Umbra Applied Technologies Group (UATG) who was down 19 percent on the day’s session.

The decline in gun stocks also make sense in relation to Trump’s stance for opposing restrictions toward assault-weapon sales, so demand should decrease if it is not as hard to get guns. Mass shootings fuel gun-buying demand, and softer gun buying laws consequently lessen the panic or demand to buy as many guns as possible as soon as possible, which looks to be the case with Trump having been elected. Just FYI, the NRA donated more money into Trump’s election campaign than any other super-PAC.

If you look at Smith & Wesson’s stock performance over the last 5 years, you can see that it had a meteoric rise from $3.02 to $30 earlier this year. So, the stock correcting its value, or overvalue I should say, is no big surprise. If you look at Sturm, Ruger & Company over the same time span, its stock price has had a very acceptable rise from $33 to its current $55 range.

The big swings in both prison and gun stocks are very interesting metrics to watch, but the market will correct itself over the next few days and trading will be back to normal. As someone once told me, “The same commuter train goes by every day, no matter what happens or who is elected…”

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