How To Profit From The Increasing Migration Of The World's Population

Includes: MGI, MOAT, WU, XOOM
by: Harlan Kessler

The United Nations recently reported that more people are living abroad than ever before. Over the past decade Asia has realized the largest increase of international migrants while the US still remains a popular destination. According to new figures from the United Nations Department of Economic and Social Affairs, 232 million people, or 3.2% of the world's population, live abroad worldwide, compared with 175 million in 2000 and 154 million in 1990, an increase of 33% and 51%, respectively.

Where Are They Going?

Europe is the most popular destination with a total of 72 million migrants in 2013, compared with 71 million in Asia. Together Europe and Asia host approximately two-thirds of all international migrants worldwide. Due to work migration and the geographic routes to North Africa, Germany and France host the largest immigrant populations within Europe. Overall, Asia added 20 million migrants since 2000, the largest increase during this time period. With respect to Asia, the increase was a result of increasing demand for labor in the oil producing countries of Western Asia and in the South Eastern countries of Malaysia, Singapore and Thailand, whose economies are expanding rapidly. The largest flow of migration continues to be between the United States and Mexico. Between 1990 and 2013, the US has added an average of one million immigrants per year for a total of 23 million. Also of note, the United Arab Emirates was the second largest gainer with seven million migrants, followed by Spain with six million.

As the world becomes more globalized, the shift in population is no longer only from poor countries to rich countries. In addition to this traditional migration, there is significant migration between rich counties and some even move from poor country to poor country depending on where the demand for work lies.

Does The Money Stay Abroad?

According to the UN report, 74% of international migrants are of working age, between 20 and 64 years of age.

Peter Sutherland, the head of Migration and Development for the U.N., feels that migration is a positive situation for both countries. The host country receives the workforce needed to keep its economy growing while the home country gets an economic boost from money sent back. The UN estimates that a billion people benefit from migrant wages and the money being sent back home. According to a new World Bank study, money that migrant workers send back to their families and home country is expected to grow by 6.3% this year and now exceeds foreign aid received from developed countries. The study also noted that migrant workers are expected to send $414 billion in remittances home to developing countries this year, a figure expected to exceed $500 billion by 2016. This compares to $126 billion in foreign aid from governments that developing nations currently receive.

Global total remittances to all nations are currently $549 billion. The largest beneficiary is India which is expected to receive $71 billion in remittances this year, followed by China ($60 billion), the Philippines ($26 billion), Mexico ($22 billion), Nigeria ($21 billion) and Egypt ($20 billion). The study also states that some economies rely heavily on remittances and noted that nearly 50% of Tajikistan's GDP comes from remittances. Other countries include Kyrgyzstan with 31% of its GDP from remittances, Lesotho and Nepal at 25%, and Moldova with 24%. Remittances have grown tremendously around the world with the exception of Latin America where the recent US recession has slowed the regional economy.

The World Bank states the current cost of sending money averages 9% of the transaction which equates to a nearly $50 billion market for companies in the money transfer business.

How to Invest in the Remittance Market

The Western Union Company (NYSE:WU) is engaged in money movement and payment services. WU services are available through a global network of more than 520,000 agent locations in more than 200 countries and territories, with approximately 90% of those locations outside of the United States. The company currently has a 15% market share in the industry, well above second place MoneyGram (NYSE:MGI) which has a 5% market share. Western Union's name is synonymous with money transfers and for that reason has been considered a "wide moat" stock by Morningstar and included in the Market Vectors Wide Moat ETF (NYSEARCA:MOAT) based on the Morningstar Wide Moat Focus Index.

WU had a significant earnings miss last October which led to a steep selloff in the market. 2013 has been a "transitional" year for the company as it pushes to expand its reach and market share in digital transfers. Again in October of 2013, WU had a sharp selloff due to updated guidance of a flat 2014 in terms of revenue. The company has expanded its digital presence into 23 countries and experienced 41% growth in 2012. Due to the selloff previously mentioned, the stock remains cheap as evidenced by the stock's current P/E ratio of 11.4, well below the industry average of 17.8. Western Union has a market cap of $9.6 billion and had annual revenue of approximately $5.7 billion in 2012. In addition to being reasonably priced, the company is also shareholder friendly and projects to return $700 million to shareholders in 2013, $300 million in dividends and $400 million in share repurchases. The stock currently has a dividend yield of 2.75%. Institutional ownership for WU is currently 97% of shares outstanding.

Like WU, MoneyGram International Inc. is a global payment services company. The company operates in two segments: Global Funds Transfer and Financial Paper Products. The company's global money transfer and bill payment services make up the majority of its revenue and offers its money transfer services on the Internet via its MoneyGram Online service in the United States, United Kingdom and through agent Websites in Italy, Saudi Arabia and Japan. It also offers money transfer services via mobile phone, kiosks, ATM, receive cards and direct-to-bank account products in various markets worldwide. MGI currently has a market capitalization of $1.21 billion, P/E ratio of over 30, TTM revenue of $1.44 billion and TTM earnings per share of $0.69. The stock is up approximately 56% year-to-date and has strong backing with 96% of the shares outstanding owned by institutional investors.

Xoom Corp (NASDAQ:XOOM) is the smallest of the three companies on this list but also a bit different from the others. The company is an online international money transfer service allowing customers to send money to family and friends in 30 countries at any time, from any Internet-enabled location. They deviate from the traditional brick and mortar model of its two competitors with its transfer business being online. Xoom currently has a market capitalization of $1.13 billion, a forward P/E ratio of over 84, TTM revenue of $112.25 million and TTM earnings per share of $0.13. The stock is up approximately nearly 18% in 2013 and has lower institutional ownership at 70%.

Disclosure: I am long WU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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