Private prison stocks have soared in light of recent American political developments, and they may be poised to climb even higher.
Donald Trump's election and his subsequent announcement of plans to nominate Alabama Senator Jeff Sessions as Attorney General have sent investors rushing to private prison stocks in recent months. Since Election Day, shares of The GEO Group (GEO) have climbed more than 50%, and shares of CoreCivic (CXW) have surged over 70%. The cause of the rally is two-fold, said Michael Kodesch, analyst at research firm Canaccord Genuity -- Trump won, and Hillary Clinton lost.
"It's not necessarily all about what Trump's policies are but also about what Clinton's policies would have been," he said.
The Democratic nominee, who was widely expected to win the election, had called for an end to private prisons and the closure of family detention and private immigration detention centers. A single tweet from the former Secretary of State caused shares of Geo and CoreCivic to plunge in September.
The Obama administration has also taken a critical stance on private prisons. Shares plummeted in August when the Department of Justice issued a memo to the Bureau of Prisons announcing plans to phase out their use.
"Once Trump was elected, all of that went away," Kodesh said.
Trump is likely to be more private prison-friendly. He expressed his support for such entities in an interview with MSNBC's Chris Matthews in March, and his policies -- specifically those related to immigration -- bode well for the industry.
At an October campaign speech in Gettysburg, Pennsylvania, Trump proposed a two-year mandatory minimum prison sentence for illegal immigrants reentering the U.S. after deportation and a mandatory five-year minimum for illegal criminal immigrants reentering. Such a measure would likely result in the detention of more illegal immigrants by U.S. Immigration and Customs Enforcement (ICE), and from that perspective, private prisons are a massive player.
About two-thirds of immigrant detainees are kept in private facilities (as opposed to about 15% of federal inmates). According to data from the Austin, Texas-based organization Grassroots Leadership, the private prison industry is expected to acquire 80% of any future immigrant detention beds.
GEO CEO George Zoley said the private sector is the "really the only logical solution for organizations that can move quickly and meet the detention standards" ICE needs for residential centers in a November conference call.
"That's probably the biggest opportunity from a Trump administration coming in," Kodesh said.