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When you hear the word “privatization,” do you think “corporate scheme to cheat the poor”? Do well-connected wastrels walking off with city contracts make you grit your teeth?

You’re so old economy.

Privatization is here to stay. No matter what happens in Florida, private sector companies will continue to do more and more of the government’s work–managing prisons, running welfare systems, operating landfills, teaching children. Although Wall Street hasn’t recognized it yet, this vibrant new sector is growing gangbusters.

With that in mind, we introduce the City Limits Privatization Index (PRIVX), a list of the top publicly traded companies that make government their business. The index includes four major categories: schools, welfare, trash and jails. For example: We’ve picked welfare management giants like Lockheed Martin’s IMS division and Electronic Data Systems as well as the nimble–and highly profitable-Maximus. Even though several of the biggest welfare companies have so far had trouble turning a profit on benefits programs, we think these stocks are important to watch. (Plus, as the economy softens, the business of welfare can only get better.)

We’ve also included some of the biggest prison companies and waste haulers, like Corrections Corporation of America and Waste Management, Inc. Even though these businesses have traveled some rough seas over the past year, we think both industries are fundamentally winners: According to the Reason Foundation, private ownership of landfills has more than doubled since 1984, while private prison beds have grown even more quickly, increasing fivefold since 1993. (For full details on the index, see the latest issue of City Limits magazine, now on newsstands).

Why an index? For one thing, it’s a great way to track the growth of this poorly understood sector. By watching the markets, we can see the real-world results of the shift from old-fashioned public works to new-style private contracts. But there’s another reason: In these days of market turbulence, companies that can count on government cash can be a great investing opportunity.

Although we’ve set the list up as a tracking device, the City Limits Privatization Index is also a blueprint for a cutting-edge investing strategy. In fact, as of last Friday, our index had climbed almost 10 percent this year–beating the pants off the S&P 500 (down more than 6 percent) and the NASDAQ (off 25 percent).

In the City Limits Weekly, we will continue to give you regular updates on the performance of the index, and short profiles of the stocks in our portfolio. The way we see it, the list is a peek at the future: You get a big promise at a cheap price, in industries that are guaranteed to grow. And if the Chris Whittles and the Ross Perots have learned to love privatization, why shouldn’t you?

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