Given President Donald Trump's slim margin of victory in 2016 and the number of Republicans up for reelection in the Senate, Republicans were going to be on the defensive this election cycle. However, it seems that the situation is even bleaker for Republicans as the party has lost support among suburban women and older voters.

Further given the increasing focus on the coronavirus and economic fallout, a "blue wave" is now the consensus expectation, while a "blue tsunami" is increasingly possible. With a bit more than 100 days until the election, there's less time for the race's momentum to change especially given Biden's double-digit lead in national polling and high single-digit lead in many swing states. Currently, former Vice President Joe Biden is a 2:1 favorite to win, and Senate Democrats are 2:1 favorites to win a majority.

The increasing odds of Democrats taking over the executive branch and legislative branch is already evident in the stock market with the strength in alternative energy stocks and gun stocks. It's also clear in one area of the market that is seeing serious weakness - prison stocks.

Prison Stocks

There are two prison stocks that are trading publicly - Corrections Corp. (CXW  ) and The Geo Group (GEO  ). In total, both account for 80% of the private prison industry. Corrections Corp. jumped more than 100% following President Trump's election. Between mid-2015 and November 2016, its stock dropped 60% on then-President Barack Obama's decision to phase out the use of private prisons due to reports of abuse and mistreatment of prisoners. The Geo Group's stock price had a similar tumble.

Upon President Trump's election, one of his first decisions was to reverse this Obama policy and crackdown on illegal immigration with private prisons used to house migrants. This resulted in an activist campaign against these companies which resulted in many banks refusing to do business with these companies. As of June 2020, eight of the largest banks have pledged not to do business with private prisons.

Due to these reasons and the increasing odds of a change in leadership, prison stocks have given up their gains. Since the March bottom in stocks, the S&P 500 (SPY  ) is up 42%, and these stocks are flat.

On a pure valuation basis, these stocks are attractive with a price to earnings ratio of 8 for Geo Group and 6 for Corrections Corp, as they remain profitable due to their existing contracts.

However on a forward-looking basis, it's hard to imagine how these companies will survive especially for the next four years. It's likely that the Obama-era approach will return and the government will take a different tack towards the immigration crisis. Additionally, these attitudes have filtered down to the state and local level.