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Hedge Fund Manager recommends buying CCA Stock

William Ackman of Pershing Square, L.P. recommended investing in the Corrections Corporation of America (CCA) at the fifth annual Value Investing Congress (VIC). 

According to ("Jailhouse Shock, Looking to cash out? Hedge fund manager Bill Ackman sees big bucks in private prison operator" October 21, 2009), Ackman says CCA is a good investment because of its 12,000 bed inventory and potential ability to incarcerate people that states like California cannot handle.  

The activist investor's company has a 9.9% stake in CCA.  During his presenation to the VIC, Ackman announced he bought CCA stock at nearly $25 a share and that he believed the stock was undervalued and really worth $40-$54 a share. 

Ackman's assessment of CCA is driven by potential profits and provides proof that persons with financial interests in mass incarceration should not be contributing to policy in this area at all.  According to Ackman, "The biggest risk for Corrections Corp. is that suddenly lots of people stop committing crimes."  He goes on to say he thinks the recession may increase crime rates. 

Ackman was also quick to brush off any concerns about falling occupancy rates at CCA, arguing that the company's aggressive building of new prisons in recent years boosted its total number of beds, and occupancy will rise as those beds are filled. Not to mention that the business is "like a hotel where you lock in the guests, and if they try to escape you shoot them."

Ackman's uninformed theories about linkages between the economy and crime rates could, at the very least, undermine the efforts that many federal and state policymakers are engaged in to deal with overcrowded prisons and bloated correction budgets.

At the most, Ackman's weak assessments could perpetuate a private prison industry that operates on speculation and thrives on the weakening of communities and families by locking up people for long periods of time. 

Following his presentation, CCA was trading up towards 2.50%.  According to ("The Geo Group (GEO) and Cornell Companies (CRN) Bouncing Off Ackman Comments on Corrections Corp (CXW)" October 20, 2009), Ackman's words impacted the entire private prison industry resulting in growth in other private prison companies too. 

Ackman's announcement that he bought CXW has caused other stocks in the prison sector to spike in late day trading. Cornell Companies (NYSE: CRN) moved up a 2.3% and The Geo Group (NYSE: GEO) rose approximately 2.5% after Ackman's comments made it to the wires.

The activist investor's support of CCA is not the first time he has invested in the private prison industry.  According to the Nashville Post ("Activist investor plows into CCA", October 22, 2009), Ackman, then with Gotham Partners, also bought 6% of Prison Realty Trust as the company merged part of its operations with CCA back in 2000. 

Ackman is probably one of many private prison profiteers whose words can impact prison capacity and mass incarceration.

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