Ackman Explains Pairs Play: Corrections Corp and Realty Income

Bill Ackman's hedge fund Pershing Square Capital Management recently revealed their long position in shares of Corrections Corporation of America (CXW). At the Value Investing Congress, Ackman labeled CXW as 'one of the best real estate businesses around.' He also said that it could potentially make a nice pairs trade. While he didn't intend it to be this way upon execution, his short position in Realty Income (O) was also recently revealed a few weeks ago and he thinks it makes a nice short to complement the CXW long. (You can also view Ackman's presentation on Realty Income).

Embedded below you will find the presentation Ackman gave on CXW at the Value Investing Congress:



Also, you can download the .pdf here.


We also wanted to note that Pershing Square filed a 13G with the SEC on Corrections Corp of America (CXW) recently as well. Pershing filed due to activity on October 20th, 2009 and has disclosed a 9.5% ownership stake with 10,936,672 shares. And obviously this is a brand new position for the fund as it did not show ownership on its previous 13F filing when we examined Pershing's portfolio.

For more on Ackman & Pershing, make sure to check our in-depth profile. While Ackman presented his long case for CXW at the Value Investing Congress, numerous other prominent hedge fund managers also presented investment ideas which we covered. It was definitely an interesting mix and we'll have to see how each manager's pick pans out.

Taken from Google Finance:

Corrections Corp is "an owner and operator of privatized correctional and detention facilities, and a prison operator in the United States. The Company operates 64 correctional and detention facilities, including 44 facilities that it owns, with a total design capacity of approximately 85,000 beds in 19 states and the District of Columbia. Corrections Corporation of America also owns three additional correctional facilities that it leases to third-party operators. The Company specializes in owning, operating, and managing prisons and other correctional facilities, and providing inmate residential and prisoner transportation services for governmental agencies. In addition to providing the fundamental residential services relating to inmates, its facilities offer a variety of rehabilitation and educational programs, including basic education, religious services, life skills and employment training and substance abuse treatment."

Comments

[prairiedog555:]

Prisons, unfortunately a growth industry in US.
I have looked at CXW in the past and pass on it because I don't like stocks without a Dividend. Was there a prison reit?

Oct 27 08:31 AM

[User429135:]

With state incomes shrinking they are cutting back on funding to privately run prisons. For that reason, I would expect that industry to shrink, not grow.
Ackman keeps putting out news releases on shorting O. Must be getting desperate not to take a bath on that.

Oct 27 10:45 AM

[jmann83:]

very interesting stock, doesn't have a strong fundamental or technical correlation to many other stocks, which is usually a trait of an outperformer, AAPL is another example of having low correlation to other stocks which makes sense because they created and own the iPod market.

Oct 27 11:10 AM

[sgt.red.blu...:]

What does it mean that CXW doesn't have a strong technical correlation to other stocks when it has a .79 correlation to O, a stock he shorted
see: www.invescopowershares... ...plug in o and cxw
disclosure: long O. looked at CXW a few years ago, passed. No yield. Stock price has not tracked O for ten years, even after not distributing any dividends.

jmann83 said 'very interesting stock, doesn't have a strong fundamental or technical correlation to many other stocks, which is usually a trait of an outperformer,'

Nov 01 09:10 PM