This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

January 2, 2009 - The GEO Group, Inc. (GEO-NYSE) and its subsidiaries provide government-outsourced services in the management of correctional, detention, and mental health and residential treatment facilities in the United States, Canada, Australia, South Africa, and the United Kingdom. The company operates correctional and detention facilities, including maximum, medium, and minimum security prisons; immigration detention centers; minimum security detention centers; and mental health and residential treatment facilities.

The company's mental health and residential treatment services include the delivery of care, programming, and patient treatment, primarily at privatized state mental health facilities. It also offers in-facility rehabilitative and educational programs, such as basic education through academic programs, as well as life skills/transition planning programs that provide job search training and employment skills, anger management skills, health education, financial responsibility training, and parenting skills. In addition, the GEO Group provides counseling, education, and treatment to inmates with alcohol and drug abuse problems.

The company develops new facilities based on contract awards, as well as provides consultation and management services relating to the design and construction of new correctional and detention facilities, and the redesign and renovation of older facilities. As of June 29, 2008, the company managed 58 facilities totaling approximately 51,200 beds. The company, formerly known as Wackenhut Corrections Corporation, was founded in 1984 and is based in Boca Raton, Florida.

Earnings have been notable at GEO. While volatile (they went from 34 cents a share in 2002 to 12 cents a share in 2003, then rocketed to 60 cents a share in 2004 only to go down to 20 cents in 2005), they appear to be headed higher. In 2006 they were 85 cents, then went to $1.05 in 2007. This year, analysts see $1.26 and next year, $1.38. Over the last 10 years, earnings per share averaged a gain of 17.5%. Then over the last 5 years, they averaged annual growth of 29.56%. Over the next 5 years, analysts predict earnings will improve by 15.3% a year, on average.

Like any good hospitality company, GEO's success comes from occupancy rates. For this year, the firm added about 5900 beds, 12% ahead of 2007's total. Occupancy is running at a rate of 97% which means margins are improving. (Like any fixed cost endeavor, once costs are covered, profits climb quickly with each marginal sale.)

Not only are sales increasing (revenues were up 8% through September from the same period last year) because of new beds, but rates are rising and costs are being cut. All contribute to a larger bottom line.

Unfortunately for society, criminals are an increasing part of the population. Now, 1 in every 100 U.S. adults is in jail. If the economy continues to struggle, the ratio may become higher. Furthermore, the young male population, the group most likely to commit crimes, is increasing which should keep demand for correctional facilities high.

For 2009 and 2010, GEO is forecasting another 7500 new beds, an increase of 14% above current levels. That's why analysts are so positive for the company's sales and earnings projections. With demographics in its favor as well as a struggling ecoomy and tougher immigration laws, the company has several factors working together to improve business for GEO.

More numbers: Price to Sales ratio for the last 12 months was .85. Price to Book is 1.61. Operating margin was 9.59% in the last year, and Profit margin was 4.97%. Return on Equity was 10.11%. There's $26.61 million in cash, making for 52 cents a share in cash. Total Debt is $494.1 million. Total Debt to Equity is .866. Current Ratio is 1.507. Book Value is $11.18. The stock traded at $12.65 in October and hit $29.48 last April for the 52-week range. There are 51.1 million shares outstanding with officers and directors owning .09% of them. There is no dividend.

While everything currently is in favor of GEO, be aware that when the economy turns, the crime rate should go down as unemployment recedes. Still, with immigration policy tightening and the demographics in the company's favor, earnings and revenues should see continued improvement. Dig deeper if you're looking for a stock that is a silver lining in these dark-clouded economic times.

Company Web site: www.thegeogroupinc.com

- Ted Allrich