This week, President Obama stood on Cuban soil beside President Raúl Castro, and declared a “new day” of openness between the two countries. Now the question for investors is: Will this new day turn out to be an opportunity to invest in Cuban stocks, or at least stocks that stand to benefit from the new relationship between the U.S. and Cuba?
I suspect the answer is “yes.”
I also suspect that even a rabid anti-communist like “Scarface” would now be inclined to buy Cuban stocks.
I don’t just say that because the 1983 crime classic starring Al Pacino is one of my favorite films of all time. I say that because at the core of the epic story is a Cuban refugee who comes to this country seeking riches, the fruits of capitalism (albeit via the illicit drug trade) and the spoils of the American dream. As investors, we want all of that too (although not the illicit drug part).
Interestingly, in one of the early scenes of the film, Pacino’s Tony Montana makes it clear to an immigration official how he feels about what it’s like to live in the island dictatorship:
“You a communist? Huh? How’do you like it, man? They tell you all the time what to do, what to think, what to feel … You wanna work eight, ten f***ing hours? You own nothing, you got nothing? Do you want a chivato on every corner looking after you? Watching everything you do? Everything you say, man?”
Well, a whole lot has changed in Cuba since the 1980 Mariel boatlift that sent many real-life Tony Montana types out of Fidel Castro’s prisons and into Miami. Yet the country is still run by a Castro. Now, however, that Castro is Fidel’s little brother, and this week he showed the world just how far the country has come by hosting the first visit by a sitting U.S. president since Calvin Coolidge in 1928.
More importantly, it’s the rapprochement between the U.S. and Cuba that began in earnest in December 2014 with an easing of the half-century-old trade and travel embargo, and that now has culminated in the historic (if largely symbolic) presidential visit that investors should be encouraged about.
Hey, if we want to make money from the warmer U.S.-Cuba relationship, what better time to do so than when the world’s eyes are watching?
Of course, doing so isn’t exactly a direct task.
CUBA: The Best Way to Tap Into Cuban Stocks
After all, there’s no such thing as a Cuban stock market. And there aren’t any publicly traded Cuban companies. There are, however, ways to invest in Cuba-related stocks that do stand to benefit mightily from this new era of U.S.-Cuba relations.
One of the most interesting ways to do just that is via Herzfeld Caribbean Basin Fund, Inc (CUBA).
This closed-end mutual fund is run by Miami-based Thomas Herzfeld, and it was created specifically to give investors exposure to companies likely to benefit from the economic, political, structural and technological developments in the countries in the Caribbean Basin, including Cuba. So far in 2016, CUBA shares are up 6.29%.
Some of the top holdings in CUBA include travel companies, homebuilders and infrastructure firms — all of which seek to benefit from renewed island tourism, the need for bigger and better homes and the need for water and other infrastructure improvements.
The top three holdings (in order) in the 60-holding CUBA funds are cruise ship giant Royal Caribbean Cruises Ltd (RCL), Latin America-based airline Copa Holdings, S.A. (CPA) and homebuilder Lennar Corporation (LEN).
Each of these companies, as well as many others, stand to benefit in the long term from new business in a ripe and open Cuba. Some of the short-list candidates besides those aforementioned Herzfeld holdings include cruise ship operator Carnival Corp (CCL), construction materials supplier Vulcan Materials Company (VMC) and soft drink bottler Coca-Cola Femsa, S.A.B de C.V. (ADR) (KOF).
One big source of uncertainty regarding Cuba is nobody really knows just how open the country will be, or how long it will take to really start embracing many of the long-held dreams of capitalists around the globe.
Still, the symbolism of a U.S. president in Cuba virtually ushering in a new era of cooperation between the once-bitter enemies is a positive development for the Cuban people and the U.S.
It’s also a big positive for investors with the foresight to start allocating a bit of their long-term capital to Cuban stocks that even Tony Montana would be comfortable investing in.
As of this writing, Jim Woods had watched “Scarface” approximately 100 times. He does not hold a position in any of the aforementioned securities.