By Bill Gunderson
People lie, but seldom go to prison for it.
Unless you are the CEO of a publicly traded company and you mislead investors about the performance of your stock.
We've all seen the perp walks and remember the stories. Tell the truth or go to jail.
That is why financial information is often the best information about what is happening in the world around us, far better than non-financial reporting.
Here's an example: Last March, in a video that went viral, a large crowd assaulted a tourist on the streets of Baltimore. The newspapers were full of people complaining about the high crime rate.
An editorial writer for the Baltimore Sun lamented that the complainers just did not know that crime was down. He knew because a politician had told him about falling crime rates.
A recent Department of Justice study says more and more people are reluctant to report a crime because they feel the police cannot do anything about it. Major recent stories in New York, Oakland, Milwaukee, Atlanta and other places echo the study: Crime-rate numbers are not very reliable because too many people want to fudge the numbers.
And there is no penalty for doing so.
But you will not catch George Zoley or Damon Hininger fudging crime numbers. Not just because they are the CEOs of two of the largest private prison companies in America, the GEO Group GEO -1.02% and Corrections Corp. of America CXW +0.35% , but also because if CEOs do not tell the truth, they could go to prison.
Here is one essential truth about the future of crime in America: GEO and CXW are currently amongst the hottest stocks in the country right now. And the stocks of companies that make guns for personal protection are not far behind. We are of course talking about Sturm Ruger RGR +0.97% and Smith & Wesson SWHC +2.25% .
Let's check out some mug shots of the stock of Boca Raton, Fla.-based Geo Group:
Small-cap stocks are one of the best asset classes to be invested in right now, and Geo Group is no exception.
This does not look like a chart of falling crime rates in America! What about the performance of the stock over the years?
The stock has an average total gain of 27.7% per year over the last 10 years and is up another 103% over the last 12 months. It sounds like business is booming to me.
While I like to buy good performance stocks, I also like do not like to pay too much for them. How much do I have to pay for this breakout stock?
The stock is a little bit ahead of itself right now, but don't tell the stock chart that. I can still justify a little over 90% upside potential over the next five years — or is that five years to life?
When I add the performance grade to value grade and compare them against the other 3,257 that I follow, the stock comes in at number 108.
This stock is solely a play that cops are going to start catching more criminals and judges are going to put more away. Geo Group offers a broad range of services to state, local and federal governments that include mental health, felon re-entry, prison construction, electronic bracelet monitoring, drug and alcohol addiction treatment, and the like.
The value of their stock is also a recognition that prison-guard unions are so big and so powerful and have gotten prison guards so much money, that states have to find another way to run prisons besides hiring public employees to do so.
Both in and out of the country.
The two popular gun stocks, RGR and SWHC, have had spectacular three year runs — especially in their lines of guns for self-defense. Sturm Ruger got so busy that last year, it had to stop taking orders for new guns.If you read the newspapers, you might believe crazy members of the NRA were stockpiling ammo and guns for doomsday. If you read the transcript of a recent Sturm Ruger conference call on their quarterly earnings, you get a better picture: Sales are up 63% "which was largely attributable to new shooters joining the ranks of gun owners and the current political environment."
That means there are a whole lot of people in this country who are getting their information about crime from places other than the newspapers.
Politicians tell us everything is fine. Business people betting their own money under penalty of perjury and threat of incarceration say something strange is happening.