Forget Bitcoin, Buy These Money Transfer Stocks
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Winklevoss twins of Facebook fame are looking to create a Bitcoin exchange traded fund (ETF). That's a bad idea, particularly since the validity of the currency is questionable at best. Investors looking for money changers should consider Western Union (NYSE: WU), Xoom (NASDAQ: XOOM), and eBay (NASDAQ: EBAY) instead.
Bitcoin is a “currency” that is used on the Internet and isn't backed by any country or physical assets. Its only worth rests on Bitcoin holders' belief in its legitimacy. That belief could be sorely tested if the government, any government, steps in and makes the “currency” illegal. That's far more likely than many would like to believe.
Having an Internet currency is a great idea, but rife with risks. That the Winklevoss twins want to corner the market on Bitcoin and create an ETF looks more like grandstanding than a good investment choice. Don't go along for the ride.
There are other companies that, without any question, help customers to legally move money around the world. The biggest and best known is Western Union. The company has locations in more than 200 countries, so it is truly a global business. Moreover, it is working to provide more online services to customers and increase its role in the lives of the under-banked.
Notably, only 10% of its locations are in the United States. While immigrants sending money home to loved ones is an important part of the company's business, it is increasingly providing services within the countries it serves. So, this isn't the Western Union of yesteryear, it's one that's becoming a global finance company specializing in legally moving cash around.
Western Union's sales and earnings have picked up after falling during the 2007 to 2009 recession. However, problems in its U.S./Mexico business took earnings lower in 2012. The issues caused the stock to sell off and is likely to be a drag on revenues and earnings over the next 12 to 18 months. This drag, however, could make now a good time to jump aboard a money changer with a great brand name. The shares yield around 2.9%, and emerging market growth should be a notable catalyst.
Another global money changer worth a look, at least for more aggressive investors, is Xoom. The company offers roughly similar money transfer services to Western Union, but does it all online. Since the company doesn't have any physical locations to support, there's virtually no cost to adding new customers. Price is a big issue in the money transfer space, so being a low-cost provider makes it easier to take market share.
Also important to the company's success is the increasing acceptance of the Internet as a safe place for doing business. Growing Internet access in emerging markets is an additional tailwind. And, early results suggest that customers like Xoom. The company's quarterly revenues have grown 50% over the last year. Even though that comes off of a small base, it shows that it is attracting customers quickly.
Aggressive growth investors should take a close look at Xoom, noting that it has yet to turn a profit.
Another option to consider is eBay. Although the company's auction business is what it is best known for, its PayPal offering is one of the de facto “currencies” on the Internet. PayPal started as a currency alternative to paying for eBay auctions by acting as a middle man between banks and eBay.
PayPal, however, can now be used as payment at most online retailers and the company is trying to work its way into brick and mortar stores, too. Representing around 40% of eBay's top-line in 2012, this is the business that's been driving the company's growth of late.
A price to earnings ratio of around 28 is a little on the pricey side, so value investors shouldn't look here. However, if PayPal can successfully transition into the physical world, there's notable growth potential. That's particularly true since Visa and MasterCard are largely viewed as necessary evils by most retailers. Recent weak results are a worry, but shouldn't stop you from looking at the stock.
Don't Play Games With Money
There's little to gain in jumping aboard an ETF backed by a suspect currency when you can invest in companies that move money legally, are well respected, and have growing businesses. Avoid the latest Winklevoss publicity stunt and its inherent risks. Look at Western Union, Xoom, and eBay instead.
Looking for more commodities-based ideas? Download the free report, The Tiny Gold Stock Digging Up Massive Profits. The Motley Fool's analysts have uncovered a little-known gold miner they believe is poised for greatness; find out which company it is and why its future looks bright -- for free!
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends eBay and Western Union. The Motley Fool owns shares of eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!