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. Last Updated: 07/27/2016

Criminal Investment A Good Opportunity

New York -- Everybody knows that crime pays, but not everyone is savvy to the ways of playing the crook business as an investment opportunity. While it's true that recent statistics scream that U.S. violent crime rates continue to fall, there's still no shortage of felons to attend to.


Wall Street has packaged and taken public everything from private detective outfits to prison companies, giving investors lots of ways to cash in on big-time malfeasance.


Analysts who follow the companies that lock up the bums say the prison business is as sure a bet as death and taxes. But one analyst who watches the scene from outside of Wall Street says playing the crime theme requires more than a simple bet on electric fences and stockades.


Jim Williams, who runs a think tank out of Longmeadow, Massachusetts, has been telling his big-name corporate clients to start thinking about buying shares of companies that detect and prevent crooks who might never find their way to the Federal pen because they're too smart to get caught.


Investors would be served buying shares of such companies as Pinkerton's, the detective agency that sells workplace security and investigative services rather than in prisons, Williams says. "Prison stocks make a certain amount of sense, but that growth is minor compared to corporate crime,'' he says.


Detecting smart crooks already is lucrative business for Security Dynamics Technologies Inc., Williams points out. The company, whose stock was up 33 percent so far this year while the Dow rose 22 percent through mid-September, is in the business of protecting and managing data on the Internet and in corporate and other computer systems.


Securities analysts who focus on traditional criminals, who are more likely to be caught and jailed, though, insist there's still money to be made on the companies that build and manage prisons.


Brian Ruttenbur of Equitable Securities Corp. in Nashville, Tennessee, says he follows nine such companies -- from high-security prison operators to companies that fasten surveillance tags to prisoners who are permitted to do their time with the family.


Though private companies have been running prisons since 1984, Ruttenbur says it's only been in the past three years "that we've actually seen scale coming on," with the number of private beds increasing from 50,000 to 97,000 at the end of 1996. Ruttenbur expects that Federal and state governments will increasingly farm out their prison management because private companies can get prisons built more quickly and run them more cheaply.


A disheartening trend in this investment field is that, while adult violent crimes are down, juvenile crimes are robust, helping the fortunes of companies that specialize in facilities for youths from 10 to 17. James Janesky, who follows prison stocks for Montgomery Securities, is recommending Youth Services International, which houses or tends to 3,000 youths in either residential or community-based programs. The company specializes in "secure facilities that maybe don't have bars,'' he says.


Investors should pay attention to the enduring market that prisons offer, Janesky says. "What a REIT shareholder cares about is the ability of the creditor ... to pay its rent,'' he says. "And what is a better source of cash flow than a facility almost guaranteed 100 percent occupancy into the foreseeable future?''


A little depressing, and an expensive venture for the taxpayers who fund U.S. jails. But, while felonies may be down, they're not out. So who could argue with Janesky?