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The Western Union Company (WU) Slumping On Downgrade, PayPal Purchase; Should You Wire Some Money Into It?

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The Western Union Company (NYSE:WU) is on the receiving end of a series of unfavorable transactions today, involving its stock. Shares of the $9.99 billion provider of global payment services and money transfers have crumbled by 6.89% in trading today after the company was hit with a double whammy of negative news. Firstly was the news that PayPal, currently an eBay Inc (NASDAQ:EBAY) subsidiary, but soon to be its own standalone company, is poised to become a greater force to be reckoned with on the money transfer and payments front, after it announced its acquisition of Xoom Corp (NASDAQ:XOOM) after trading closed last night. Following that, Ashwin Shirvaikar, a Wall Street analyst at Citigroup, reported that the deal threatens the check to check component of Western Union’s business. He believes that a new combination of PayPal and Xoom would lead to higher competitive pressure on Western Union’s online operations, as Xoom would leverage PayPal’s existing customer base. In addition to that, earlier today, the stock of The Western Union Company (NYSE:WU) was downgraded by Evercore Partners to ‘Hold’ from ‘Buy’. So far this year, Western Union is still up by 6.18%, however this is lagging the industry average, which is 14.33%.

The Western Union Company (NYSE:WU)The smart money was growing bearish on Western Union heading into the previous quarter. A total of 26 of the hedge funds tracked by Insider Monkey were long in The Western Union Company (NYSE:WU) on March 31, with about $1.06 billion of managed money in the stock. That was a decrease from the 28 hedge funds with positions on December 31, and while the capital did increase from $939 million, it did not outpace the 16% gains of the stock during the period, suggesting there was some overall selling of shares.

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 80 percentage points, returning over 135% (see the details here).

In today’s marketplace there are plenty of metrics investors put to use to value their holdings. A pair of the best metrics are hedge fund and insider trading activity. The insiders’ activity in Western Union has been largely characterized by selling. Over the last three months, a net of 431,731 shares were sold, while no major acquisitions were completed. Diane Scott, the Chief Marketing Officer, headed the list of sellers among executives as she disposed of some 207,178 shares during this period.

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