Looking for Laggards 4: GEO Group (Insider Buying, Tech Set Up)

May 11, 2020

Hi folks, a quick one today.

 

To be fair, I've been observing this for a long time, but my discipline is not to bother about a stock in the crisis unless there was significant insider purchase.

 

I saw it today.

 

The writings on SeekingAlpha are mostly negative.

 

This made me more interested on this, since the "average" investor is exposed to more bearish opinions on it.


GEO is owns and operates prisons and correctional facilities. Think of it like a REIT, but it takes rental from the government for housing prisoners. Here is their recent quarterly earnings presentation: https://seekingalpha.com/article/4341550-geo-group-inc-2020-q1-results-earnings-call-presentation

 

PROS:

 

1) It has a captive audience. The government pays for the rental. It's a safer haven for revenue compared to shopping centers etc.

 

2) CEO stamp of approval with multiple insider purchases.

 

3) The yield now is double digits. Pays to wait.

 

CONS:

 

1) Political Risks. The Left has been rumbling about the privatization of prisons. I think Trump gets reelected, and even if he does not, it doesn't mean that private prisons will be defunded, but at least there will be an extra level of bearishness.

 

2) What if prisons become hotbeds of COVID19 infection? Doesn't seem to be an issue now.

 

3) High debt, just like a REIT.

 

When it comes to political risks, management has a better handle of such things than outsiders.

 

The chart looks interesting, and the market price is in the insider buy zone.

 

 

 

Remember:

 

1) Do your due diligence to understand the business model and risk.

 

2) When it comes to bottoming snap-back plays, diversification is necessary. This is a probability play in uncertainty. The ones that work out usually more than make up for those that don't work as well.

 

Bye!

 

I'm busy working on my book on "Faith, Financial Markets and Godly Wisdom" Book. Pray for me.

 

God bless!

 

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