Cuba news continues to be a part of everyday conversation for the stock market, which means investors continue to look for stocks to buy when that Cuba news pops up. As relations between the United States and Cuba get stronger, investors consider every sector and angle that could lead to better returns.
There are a limited number of direct Cuba plays for investors, so instead we have to get creative and consider where there is an opportunity for growth among companies investing in that country.
With Donald Trump being elected president, worries are now surfacing about relations between Cuba and the U.S. Trump promised to end the friendliness to Cuba if a better deal is not offered. Current president Barack Obama has pressed businesses to complete deals with Cuba prior to inauguration day in January.
Large companies like General Electric Company (NYSE:GE) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are signing deals in Cuba, but their massive size presents limited opportunity for investors to gain on the stocks being Cuba plays.
Investment opportunities are limited and can be rather speculative, but here are three stocks to buy on a positive outlook for the U.S. and Cuba.
Stocks to Buy for Cuba Plays: Norwegian Cruise Line (NCLH)
One of my favorite Cuba plays is cruise ship operator Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH). Cruise lines stand to see a big benefit by Cuba opening up as a tourist destination. This gives a company like NCLH the opportunity to plan cruises around Cuba and take advantage of customers wanting safe, affordable ways to see the country.
Norwegian Cruise Line may benefit more than other cruise lines given the history of its CEO. Frank Del Rio is a Cuban-American who left the country in 1961, but has already visited once to see how the country has progressed. Del Rio may have some insight on how his company can best take advantage of this extreme opportunity.
How big is the opportunity for cruise lines in Cuba? Del Rio recently said, “There may be more opportunity for the cruise industry in Cuba than there is in China.”
The financials for NCLH stock continue to improve. In the recent third quarter, revenue increased 16% to $1.5 billion. Net income increased to $1.62 per share, up from last year’s $1.35 in the same period. With the strong quarter, NCLH backed full-year guidance of earnings per share in a range of $3.38 to $3.42. Going forward, strong bookings for 2017 have led the company to predict double-digit growth for EPS again in fiscal 2017.
With a market capitalization of around $10 billion, Norwegian Cruise Line is the smallest of the three major publicly traded cruise lines. That means there could be a big opportunity to continue scaling the business and increasing its market share. Getting out in the lead with the Cuba opportunity could help.
Stocks to Buy for Cuba Plays: Stonegate Bank (SGBK)
My next pick is among the smallest of these Cuba plays and could get only a minimal impact from the opening of the U.S. and Cuba relationship. The small Florida bank is on an acquisition binge though, and is also putting itself ahead of others in a race to enter Cuba.
However, if all goes as planned, this could actually be one of the best stocks to buy on the strengthening of Cuba’s economy.
The importance of this cannot be overstressed, as otherwise tourists have to pay for items with cash or use other means. Cuba has restricted U.S. financial institutions from having operations in Cuba, so Stonegate could be taking an early lead and getting out in front of possible expansion to Cuba if ever allowed by the government.
Stonegate Bank is issuing corporate and personal credit cards available to use in Cuba, as well as prepaid cards. While this sounds like a minimal impact for a normal bank, Stonegate believes it will provide a “meaningful diversified income stream” to the bank.
In September, Stonegate Bank completed a merger with Regent Bancorp that strengthened its position in Florida. The deal boosted Stonegate’s total assets and deposits both over the $2 billion level. The merger also gave the bank more branches spread out across the state of Florida.
Stonegate also announced plans to acquire Insignia Bank, the number one bank in Sarasota.
Stonegate has now acquired 10 banks since 2009.
In the third quarter, Stonegate Bank announced it had $2.29 billion in loans, which saw strong growth from acquisitions and also $73 million in net organic loan growth. Net interest income grew to $22.4 million. Credit cards issued stood at 261,000, a number that could grow thanks to Cuba.
Another positive event could be the increased number of hedge funds adding Stonegate Bank to their holdings. In the recent third quarter, 15 hedge funds are holding SGBK stock, up from eleven in the second quarter and eight in the first quarter.
With a small-market capitalization of $600 million, Stonegate Bank has some opportunity here.
Stocks to Buy for Cuba Plays: Herzfeld Caribbean Basin Fund (CUBA)
When any new Cuba news is announced, one of the most popular stocks to buy is the Herzfeld Caribbean Basin Fund, Inc (NASDAQ:CUBA), a closed-end fund. The Herzfeld Caribbean Basin Fund offers a basket of stocks related to countries like Cuba, Jamaica, Trinidad & Tobago, the Bahamas, the Dominican Republic, Barbados, Haiti and others.
While this fund offers exposure to companies in the region around Cuba, it holds no direct Cuban companies, which has been a major drawback. However, if you’re looking for stocks to buy that could benefit from Cuba, this fund may be the quickest and easiest way to go. The fund is dominated by leisure (16% of assets), airlines (13%) and construction (13%) companies that could benefit from the growth in Cuba.
The expansion of the Panama Canal was also listed as a reason for growth in the fund’s prospectus.
This fund is trading at a premium to its net asset value, which may mean shares are currently overvalued. Investors typically pour into this name on positive Cuba news, which leads to shares seeing many day-trading swings, so be careful when you get in.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.