Investor’s Guide to the Budget


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I know we’ve talked about this budget as though it’s all gloom and doom with its privatization, layoffs and local tax increases it will generate. But why dwell on the negative, when you too can profit from this budget?

If you have an E-Trade account and cash to invest, here are a few publicly-traded companies who are positioned well to profit from Ohio’s recently enacted budget*.

Prison Privatization – with five prisons on the auction block thanks to the budget, and GOP legislatures in other states pushing the same pro-privatization agenda, private prison operations is sure to be a big growth industry. Two of the three major players in this arena are publicly-traded firms:

  • Corrections Corporation of America (CXW) – while the company has a poor track record of running private prisons in Ohio, it has to be considered to have the inside track now, as the Governor’s pick for Corrections Chief is a former CCA executive.
    Revenue: $1.7B, quarterly revenue growth: 5.5%, profit margin: 9.58%, price to earnings ratio: 14.7
  • GEO Group (GEO) – the company saw its stock price drop as sentencing reform in California led the state to cancel contracts with three GEO-owned and operated facilities there. The policy change sends more prisoners to the county level, where overcrowded conditions give the company hope that it can market the three facilities to the county instead. So, fear not, potential investors, one way or another, these profiteers will find a way to make money off of incarcerations.
    Revenue: $1.37B, quarterly revenue growth: 36.3%, profit margin: 4.56%, price to earnings: 19.7

Drilling on Public Lands – the budget included a provision to expand oil and gas drilling to state parks. the provision was later removed but passed in separate legislation, so we’re going to count it as a budget-related profit opportunity. There’s really only one major player to watch:

  • Chesapeake Energy (CHK) – this is the major player in what’s known as utica shale, a resource that is abundant in parts of eastern Ohio. The Dayton Daily News reports the company has bought up $1 billion worth of leases, with 120 leasing agents operating statewide. Just today, the company announced a major find in Ohio, something the Governor’s office was quick to applaud. This is a great hedge against any money you might lose if you own property near a Chesapeake drilling site, since the water quality is bound to deteriorate thanks to the fracking methods they employ.

    Revenue: $8.18B, quarterly revenue growth: -42.4%, profit margin: 10.68%, price to earnings: 28.19

Medicaid Managed Care – representing the largest single area within the state budget, Medicaid continues to grow as all other parts of the budget shrink. And the Governor’s budget shifts more medicaid patients, including disabled kids, the mentally ill and nursing home patients into managed care plans, sending billions of dollars to a handful of managed care organizations that contract with the state. While Caresource is the largest player in Ohio’s program, it is a privately-held company, so sadly you cannot get in on this money train. Instead, consider one  of the other publicly-traded managed care companies that profit from the Ohio Medicaid population:

  • Amerigroup (AGP)
    Revenue: $5.97b, quarterly revenue growth: 12.3%, profit margin: 5.05%, price to earnings ratio: 11.32
  • Centene Corp (parent of Buckeye Community Health Plan) (CNC)
    Revenue: $4.61B, quarterly revenue growth: 13.4%, profit margin 2.05%, price to earnings: 19.02
  • Molina Healthcare (MOH)
    Revenue: $4.24B, quarterly revenue growth: 15.8%, profit margin: 1.46%, price to earnings: 16.51
  • United Healthcare (parent of Unison Health Plan) (UNH)
    Revenue: $96.39B, quarterly revenue growth: 9.7%, profit margin: 4.97%, price to earnings: 11.64

There are likely dozens more just like these if you do a little research. Turnpike and Lottery privatizations, Casino operators, breathalyzer manufacturers (thanks to the Ohio House of Representatives!), just to name a few.

Just because your school district and local government got hosed, don’t assume it’s only the rich guys who will profit from this budget. If you act fast, there’s no reason you too can’t have a piece of the action.

 

*note: we are not professional investment advisers; you would be stupid to take financial advice from a blog.

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