Editor’s Note: We are providing an equity trade for conservative investors and an options trade for aggressive traders.

EQUITY TRADE INSTRUCTIONS

Symbol: WU (NYSE)
Limit: Buy below $20
Holding Period: 5 months
Target Price: $23
Target Gain: 15%

OPTIONS TRADE INSTRUCTIONS

Symbol: WU190215C00018000
Limit: Buy the Call option below $1.75
Strike Price: $18
Expiration Date: February 15, 2019
Target Gain: 185%

COMPANY DESCRIPTION                     

The Western Union Company provides money movement and payment services worldwide. The company operates in two segments, Consumer-to-Consumer and Business Solutions. The company also facilitates bill payments from consumers to businesses and other organizations, as well as offers money order and other services. It serves primarily through a network of agents. The Western Union Company was incorporated in 2006 and is headquartered in Englewood, Colorado. Link to company website.

TRADE RATIONALE       

The Western Union Company (NYSE: WU) has been stuck in a trading range for the past year due in part to concerns over the impact cryptocurrencies may have on its business. The assumption is that the anonymous nature of cryptocurrencies makes them more difficult to track across national boundaries and are therefore more attractive to tax evaders than are the traceable money transfers facilitated by Western Union.

There are two problems with that theory: first, nearly 80% of Western-Union’s revenue is generated by C2C (consumer-to-consumer) transactions that are relatively modest in size; second, the inherent risk of the cryptocurrency market has become apparent as evidenced by Bitcoin’s 67% decline over the past eight months. After all, what good is avoiding a relatively small tax bite if you incur a much bigger loss of principal?

For that reason, I think WU has become oversold and is going to break back above $20 later this year as it gains market share from erstwhile cryptocurrency users. Western Union earns an IDEAL score of 9 (on a scale of 0 – 10) thanks to its high dividend yield of 4%, strong cash flow, and forward P/E ratio of 10.0 (compared to a multiple of 17.8 for the S&P 500 Index).

From a technical perspective, WU has short-term support at $18.80 and its 50DMA appears to have leveled off last week. Its RSI has climbed above 50, and earlier this week it broke above its upper Bollinger Band near $19.20.

This week, the company announced that its mobile app is now fully operational in Mexico. Combined with the recently completed negotiations for the United States-Mexico Trade Agreement, Western Union is uniquely positioned to capture a large share of the $806 million that Mexican residents wired abroad last year. That won’t be a game changer, but it should provide a noticeable lift to Q4 results during the holiday season.