immigrationImmigration reform is happening. The right wing of the Republican Party is trying to kill reform, but the American public views reform as an idea whose time has come. So even if reform at the federal level does not happen his year, there will greater willingness for illegal workers to come out of the shadows, great willingness to hire them and a great unwillingness to find them and deport them.

This will translate into more income headed to that shadow part of the economy – and a lot of that income is sent back home — hopefully, workers’ old homes — and much of that will go through Western Union (WU).

Back before the housing crash, the jobs numbers kept showing increases in construction employment, which made no sense.

Those of who actually went to job sites saw the opposite – and we also saw that in many, perhaps most parts of the country, the crews had become increasingly Hispanic. I began measuring the sector — companies specializing in money transfers — by tracking funds remitted to developing nations, data readily available from the companies doing so. These fund flows were shrinking for the first time in many years, proof the housing crash had started.

The reverse is happening – in part because the economy is improving, especially construction and restaurants, and funds are flowing home and more to “back home.” Remittances to Latin America grew 2.9% last year, are expected to grow to 7.6% this year, part of overall remittance growth from 3.6% to 6.9% in 2013.

A premium brand

The play is Western Union. It is the premium and largest brand in this market with more than 500,000 agents here, there and everywhere. One in six in transfer agents in China is a Western Union agent, selling a premium product prized in a country where trust, pardon the pun, is at a premium. Despite a recent cut in fee prices, WU has higher margins than competitors such as Moneygram (MGI) – more than 40% compared to less than 30% at MGI. Also at play is WU, since Q3 of last year, has given up a chunk of business due to anti-immigration efforts, disguised as anti-money laundering efforts by the Arizona Attorney General. These efforts should hit WU’s competitors this year, pushing some business back its way.

Western Union stock bounced violently off a bottom just a few weeks back. It still has a very long way to go with business improving and a forward P/E of less than 10. You can own it, own it and sell calls or sell some puts. The stock is around $16 – buy the shares and you could see $22 in a year or so. Buy the shares and sell some calls and you can generate a yield of more than 30% — the calls have rich premiums. Or if you sell puts you could generate a yield of almost 40%.

One last editorial point – I desperately try to avoid intersecting investing opinion with politics. That being said, my grand-aunt, my grandfather’s sister Annie Moore, was the first person ever processed on Ellis Island. If you have sensed I have an opinion on the issue, that is why.


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