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In this article, we discuss the 11 best prison and law enforcement stocks to buy now. If you want to see more stocks in this selection, go directly to the 5 Best Prison and Law Enforcement Stocks To Buy Now.
According to the Council of Criminal Justice (CCJ), the rate of violent crimes as of August 2022 is still higher than the pre-pandemic levels. The homicide rates have increased by 40%, while car theft and robberies are up 15% and 19%, respectively, this year as opposed to 2021. This has caused the US Congress to roll out a $37 billion budget to improve policing and ensure crime prevention. Around $13 billion will be invested in the next five years to recruit 100,000 police officers across the US. The bill will also focus on community policing which is considered an integral part of developing better relations with the local population by the Biden Administration. The Safer America Plan also intends to invest $1 billion to train police officers with a focus on accountability and transparency.
State governments have invested $350 billion, allocated by the US Federal Government under the American Rescue Plan Act (ARPA) in March 2021, to stimulate the economy following the impact of the COVID-19 pandemic. Data shows that over $25 billion have been diverted toward police and prisons. The significant flow of funds is being considered a positive development for some of the best prison stocks like Palantir Technologies Inc. (NYSE:PLTR), CACI International Inc (NYSE:CACI), and Axon Enterprise, Inc. (NASDAQ:AXON).
It must be noted that the Biden Administration has barred the US Federal government from giving out new federal contracts to private prison companies through an Executive Order. However, it is not expected to have a significant impact on the best prison stocks as they generate less than 25% of their revenue from the contracts of the US Bureau of Prisons (BoP) and US Marshals. Furthermore, the impact of this Executive Order will take years to come to fruition.
Our Methodology
We have shortlisted stocks with strong growth prospects and solid business fundamentals. These companies are expected to generate strong returns as the market turns bullish in the future. We have also included the analyst ratings outlining the market sentiment on these companies. Insider Monkey's database of 895 hedge funds as of Q2 2022 was used to rank these stocks.
Best Prison and Law Enforcement Stocks To Buy Now
11. ShotSpotter, Inc. (NASDAQ:SSTI)
Number of Hedge Fund Holders: 7
ShotSpotter, Inc. (NASDAQ:SSTI) is a Freemont, California-based provider of precision policing technology through its gunshot detection, gun crime management, search engines for investigations, case management, and community-first patrol management solutions.
Erik Suppiger at JMP Securities upgraded ShotSpotter, Inc. (NASDAQ:SSTI) stock from a Market Perform to an Outperform rating with a target price of $42 on October 17. The analyst thinks that the demand for the flagship service offered by the company has increased significantly due to the rising rate of gun-related crimes. Suppiger anticipates ShotSpotter, Inc. (NASDAQ:SSTI) to experience an expansion of margins in the coming years due to an improvement in investor sentiment as inaccurate reports regarding the company in the media have been reduced. Furthermore, the analyst thinks ShotSpotter, Inc. (NASDAQ:SSTI) has added numerous products to its portfolio that should encourage growth and diversify the company’s sources of revenue in the future.
The cash flow valuation of ShotSpotter, Inc. (NASDAQ:SSTI) is also favorable, making analysts consider it one of the best prison stocks. The price/cash flow ratio for the stock stands at 9.8 currently, significantly below the industry median of 16. The company has been generating strong operating cash flows since 2019.
Renaissance Technologies raised its stake in ShotSpotter, Inc. (NASDAQ:SSTI) by 30% during Q2 2022.
10. Cohu, Inc. (NASDAQ:COHU)
Number of Hedge Fund Holders: 8
Cohu, Inc. (NASDAQ:COHU) is a Poway, California-based company that caters to the demand of the law enforcement industry by providing microwave communications equipment and antenna systems. This equipment transmits audio and video through the medium.
Cohu, Inc.’s (NASDAQ:COHU) non-GAAP forward earnings multiple stands at 10.05 as of October 20, reflecting a significant discount to its 5-year average of 24.48. Additionally, the company's recurring income divisions are still expanding due to better-installed systems and improved semiconductor product designs. These segments are likely to boost the margins of the business in the future. The major recurring business of Cohu, Inc. (NASDAQ:COHU) contributed over 42% to Q3 revenue at a non-GAAP gross margin of 54%. This reflects a three-year CAGR of 6.5%.
Recurring revenue in the most recent four quarters totaled $336 million, or 41% of turnover, providing a lucrative and reliable revenue stream despite market fluctuations. In the last eight quarters, Cohu, Inc. (NASDAQ:COHU) has surpassed revenue estimates on five occasions and adjusted EPS forecast six times. The company's solid historic performance makes it one of the best prison stocks in the industry right now.
As of Q2 2022, Cohu, Inc. (NASDAQ:COHU) was held by 8 hedge funds.
9. Federal Signal Corporation (NYSE:FSS)
Number of Hedge Fund Holders: 9
Federal Signal Corporation (NYSE:FSS) is an Oak Brook, Illinois-based provider of law enforcement solutions through its accessories, such as perimeter lights, push bumpers, stingers, and speakers.
In a research note issued on October 7, Michael Shlisky at DA Davidson upgraded Federal Signal Corporation (NYSE:FSS) stock from a Neutral to a Buy rating and increased the target price from $39 to $46. The analyst made the update following the Industrials conference, along with a follow-up call with the entity's management. Mr. Shlisky believes that a company that relies on government contracts remains attractive during a recession. The analyst anticipates Federal Signal Corporation (NYSE:FSS) to maintain pricing when commodity prices normalize, and this can provide an upside in the future, attracting more investor attention to one of the best prison stocks.
On October 25, Federal Signal Corporation (NYSE:FSS) declared a quarterly dividend of $0.09 per share, translating into an annual forward dividend yield of 0.81%. The company also shared that it had replaced its previous $500 million credit facility with an $800 million facility, which consists of a $125 million five-year term loan arrangement and a $675 million revolving credit facility.
GAMCO Investors was the leading hedge fund investor in Federal Signal Corporation (NYSE:FSS) as of Q2 2022.
8. Cadre Holdings, Inc. (NYSE:CDRE)
Number of Hedge Fund Holders: 10
Cadre Holdings, Inc. (NYSE:CDRE) is a Jacksonville, Florida-based provider of safety and survivability products for first responders, federal agencies, and other protection markets. Some of the products produced by the company include duty gear, armor, and communication devices.
On September 6, Ronald Epstein at Bank of America initiated coverage on Cadre Holdings, Inc. (NYSE:CDRE) stock with a Buy rating and a target price of $30. The analyst believes that the company can generate strong free cash flows and margins by consolidating its opportunities. Epstein anticipates Cadre Holdings, Inc. (NYSE:CDRE) to expand the scope of its products, which is considered the primary source of its top line. The company can either do this through acquisitions or organic growth. The recent acquisitions are expected to contribute 9% to Cadre Holdings, Inc.’s (NYSE:CDRE) 2024 EPS. Experts believe that Cadre Holdings, Inc. (NYSE:CDRE) provides unique exposure to the law enforcement market and offers a stable revenue base with increasing budgets for police, making it one of the best prison stocks.
Here's what Brasada Capital Management said about Cadre Holdings, Inc. (NYSE:CDRE) in its Q2 2022 investor letter:
“Cadre is another recent addition. We became familiar with the company in December but were unable to build much of a position as the stock ran up. The company recently issued equity in a secondary offering that was poorly received, and the price declined to where it was when we first discovered it. We were able to take advantage of the sell-off and purchase shares. Patience can pay off.
This is a scenario where we are betting on the jockey to build a compounder. In 1996 Warren Kanders bought a tiny company body armor company in Florida that was generating $11M in revenue. This was the seed of Armor Holdings, which eventually went public and was sold to BAE Systems in 2007 for $4.5B. In 2012 BAE sold back to Kanders the body armor and holster business. Kanders has been building the business, which is now called Cadre Holdings, and he took the company public in August of 2021. Kanders is the Chairman and CEO. He still owns almost 50% of the stock…” (Click here to see the full text)
7. The GEO Group, Inc. (NYSE:GEO)
Number of Hedge Fund Holders: 17
The GEO Group, Inc. (NYSE:GEO) is a Boca Raton, Florida-based provider of correctional and community reentry services through its private prisons and mental health facilities worldwide.
The US has the biggest prison population in the world, with the facilities in the country catering to over 25% of the global prison population. The US also has one of the highest rates of repeat offenders, as 44% of convicts re-offend during the first 12 months out of prison. These trends reflect the presence of a strong market for the company's services. The GEO Group, Inc. (NYSE:GEO) stock is trading at a very attractive valuation with a forward P/E multiple of 6.43x as opposed to the sector median of 15.57x. Meanwhile, the EV/EBITDA multiple of 7.39x reflects a discount of over 35% from the sector median.
The GEO Group, Inc. (NYSE:GEO) announced its Q3 2022 results on October 27. The company reported an adjusted fund from operations (AFFO) of $0.60, beating the analysts’ estimates by $0.27. Furthermore, The GEO Group, Inc. (NYSE:GEO) observed its revenue increase by 10.7% YoY to $616.7 million. The company also increased its full-year adjusted EBITDA guidance for 2022. These fundamentals make The GEO Group, Inc. (NYSE:GEO) one of the best prison stocks to invest in.
The GEO Group, Inc. (NYSE:GEO) stock also has the distinction of having the renowned investor Michael Burry as one of its leading hedge fund investors as of Q2 2022.
6. CoreCivic, Inc. (NYSE:CXW)
Number of Hedge Fund Holders: 17
CoreCivic, Inc. (NYSE:CXW) is a Nashville, Tennessee-based company that is the biggest owner of correctional, detention, and residential reentry facilities in the US, with an experience of over 35 years.
CoreCivic, Inc. (NYSE:CXW) is also the biggest owner of real estate under the use of government agencies. Following the executive order forbidding Federal authorities from entering into a contract with private prison companies, CoreCivic, Inc. (NYSE:CXW) is finding new tenants for its properties to sustain growth levels. CoreCivic, Inc. (NYSE:CXW) firmly believes that there is a shortage of beds in the US correctional system that will ensure that its services will remain in high demand moving forward.
CoreCivic, Inc. (NYSE:CXW) is currently trading at a price-to-earnings ratio of 13.07 times earnings, which is significantly lower than the average of 20.20 times earnings for the 500 stocks on the S&P 500 index. Analysts expect the company’s earnings per share to rise by 17% during 2023, making it one of the best prison stocks to buy now. At this level of earnings, CoreCivic, Inc. (NYSE:CXW) has been assigned a target price of $13.05 per share, reflecting an upside of 36% as of October 27.
In addition to CoreCivic, Inc. (NYSE:CXW), stocks such as Palantir Technologies Inc. (NYSE:PLTR), CACI International Inc (NYSE:CACI), and Axon Enterprise, Inc. (NASDAQ:AXON) are also considered among the best prison stocks.
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Disclose. None. 11 Best Prison and Law Enforcement Stocks To Buy Now is originally published on Insider Monkey.
