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Two Winners on a Weak Dollar

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As Europe and China strengthen, the dollar has lost some of its value, and as recovery gains traction in the US, the dollar weakness will grow. But that doesn't have to be a bad thing.

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As the US Federal Reserve pursues a policy of essentially unlimited quantitative easing, investors have become increasingly concerned about the potential for a sharp devaluation of the dollar.

While that's a concern for American consumers and businesses that operate primarily in the US, the reality is that most major corporations wouldn't be hugely affected. Nearly half of S&P 500 (INDEXSP:.INX) companies' sales are generated outside of the US.

In fact, there are a number of US-based companies with significant for-eign operations for which a devalued dollar would actually pose a tailwind. We'll take a look at a few that would not only provide investors a hedge against a weaker dollar, but also offer moderate yields and lower volatility.

Western Union (NYSE:WU)
An estimated 43 million people liv-ing in the US today are foreign-born, counting both legal and undocu-mented residents, making up 13.5% of the population. Globally, an estimated 200 million people are living in countries other than those of their birth.

In fact, there are a number of US-based companies with significant for-eign operations for which a devalued dollar would actually pose a tailwind. We'll take a look at a few that would not only provide investors a hedge against a weaker dollar, but also offer moderate yields and lower volatility.

Most immigrants leave their home countries in search of jobs and a better life and they're eager to share their newfound wealth with the folks back home. In 2010, the latest year for which data is available, remittances from the US alone totaled $48.3 bil-lion, according to the World Bank. The global immigrant population sent home more than $440 billion that year.

Since 2009, the value of global re-mittance payments has been growing by about 4% annually. Prior to that period, average annual growth ran in the mid-teens as burgeon-ing wealth and a weakening dollar pushed immigrants to send more money home.

With more than 500,000 agents in 200 countries, Western Union claims a huge slice of that pie as the world's largest money transfer service. Historically, its rev-enue and earnings growth have fallen largely in line with trends in global remittance payments.

If you expect the value of the US dollar to decline either through infla-tion or diminished investor confi-dence, Western Union is a great play, because it's largely immune to dollar erosion. More than 71% of its revenues originate outside of the US and in foreign currencies.

Regardless of the dollar's direction, Western Union has plenty of room to grow. Despite its size, the company commands only 20% of the global market, giving it ample oppor-tunity to pick up share either through price competition or acquisitions.

Asia, Eastern Europe, and Latin America represent largely virgin territory for the company, offering huge expansion prospects. Western Union recently sealed a deal with Banco Ahorro Famsa, one of Mexico's largest banks, to offer money transfer services in 300 of its banks branches across the country.

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No positions in stocks mentioned.
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