Investing: Profit from Cuba’s coming boom
Daren Fonda and Kiplinger’s Personal Finance
As the largest economy in the Caribbean, Cuba offers tantalizing
possibilities, assuming it takes steps to liberalize its economy. It has
vast mineral deposits, a developed biotech industry, ports close to the
U.S., and gorgeous beaches for resort development.
Investing in Cuba-related stocks now means taking a flier on companies
that don’t do a meaningful amount of business, if any, on the island.
But some stocks look attractive in their own right and could get a lift
from Cuba-related business if the country does open up.
Carnival (symbol CCL; recent price, $54), for example, may be the first
major cruise-ship company to drop anchor in Havana. It plans to start
“cultural exchange” cruises to Cuba in the spring of 2016, pending
approval by Cuban authorities.
With more than $15 billion in annual revenues, Carnival will have to
sell a lot of Cuban cruises to move the sales needle. But analysts
expect Carnival’s earnings per share to climb by 28 percent in its
fiscal year that ends in November 2016 — healthy growth with or without
Cuba. The shares yield 2.4 percent, compared with 2.2 percent for
Standard & Poor’s 500-stock index.
Airlines such as American Airlines Group (AAL, $46) and Panama-based
Copa Holdings (CPA, $53) could pick up Cuban business, too. With a major
hub in Miami, American offers more charter flights to Cuba than any
major U.S. carrier. Copa is already the largest foreign airline in Cuba,
with six flights to and from the island daily. Although sales have been
hammered by a slowdown in Latin American travel, Copa looks “poised to
profit from any pickup in flights” to Cuba, according to a report by the
Herzfeld Caribbean Basin Fund (CUBA), a closed-end fund that was set up
in 1993 to try to profit from Cuba-related businesses. At last word,
Copa was its top holding.
A building boom in Cuba could benefit Vulcan Materials (VMC, $97), the
largest U.S. producer of construction materials such as crushed stone,
gravel, asphalt and concrete. Along with more than 440 production sites
in the U.S, the company runs a large quarry and marine terminal on
Mexico’s Yucatan Peninsula — a prime location for exports to Cuba. The
stock is pricey, at 28 times estimated year-ahead earnings. But Vulcan
may deserve the rich valuation, as analysts expect the company’s profits
to soar 66 percent in 2016, to $3.47 per share.
Several Mexican companies may also be Cuba winners. Latin American
telecom giant America Movil (AMX, $18), cement maker Cemex (CX, $6) and
soft drink bottler Coca-Cola Femsa (KOF, $78) look well positioned to
gain sales in Cuba, according to the Herzfeld fund.
(Daren Fonda is an associate editor at Kiplinger’s Personal Finance
magazine. Send your questions and comments to email@example.com.
And for more on this and similar money topics, visit Kiplinger.com.)
Source: Investing: Profit from Cuba’s coming boom – Chicago Tribune –