Illegal Immigration Profits

NEW YORK (TheStreet Ratings) -- The free market conservatives in Alabama, Arizona, Georgia and Florida must really love illegal immigrants.

Instead of subjecting undocumented workers to back breaking, minimum-wage work, new laws are being passed to provide free room and board for them within the prison system. With the trend toward privatization, every new illegal immigrant prisoner is now a potential source of corporate revenue.

The two public companies positioned to collect around $90 per day for each inmate housed are both 'Buy'-rated by TheStreet Ratings. Corrections Corporation of America (CXW) rated at B- and The GEO Group (GEO) rated at B, are leaders in the private prison industry.

On Thursday June 9, Alabama's governor Robert Bentley signed an immigration law, similar to those of Arizona and Georgia, to use state police to check the immigration status of drivers pulled over for traffic infractions. Until these laws are found unconstitutionaln they will push up the number of prison inmates.

On Wednesday, June 1, The GEO Group announced a deal with the U.S. Immigration and Customs Enforcement (ICE) to house detainees at a 650-bed expansion to their existing facility bought from the city of Adelanto, California a year ago. GEO Group expects the facility to be full by August 2011 and build room for an additional 650 beds by 2012. To sweeten the deal, the company is guaranteed a 75% occupancy rate. At $42 million in expected revenue from the facility breaks even on renovation costs in less than three years.

In Florida, Governor Rick Scott's recently passed budget also shifts some Florida prisons to private hands.

Exchange-traded funds are the wrong way to play this privatization trend. Macquarie Global Infrastructure Total Return Fund (MGU), the most concentrated in Corrections Corp of America at 2.1%, is rated in the 'Sell' range as is First Trust Industrials AlphaDEX (FXR) holding just 1.2% CXW. Vanguard Small Cap Growth ETF (VBK) is ranked in the middle of the pack as a 'Hold' but contains just 0.3% of Corrections Corp of America.

Three ETFs rated at 'Hold' own shares of The GEO Group. However, at a maximum stake of 0.6% of assets, iShares S&P Small Cap 600 Value (IJS), SPDR S&P 600 Small Cap Value ETF (SLYV), and iShares Morningstar Small Growth (JKK) hardly budge the investment outcome needle on movements in the underlying stock.

Continue to focus on direct holdings of Corrections Corporation of America until the political winds shift.

-- Reported by Kevin Baker in Jupiter, Fla.



For additional Investment Research check out our Ratings Research Center.

Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.