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.
By Daren Fonda and Kiplinger’s Personal Finance, Chicago Tribune
November 23, 2015
(Daren Fonda is an associate editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to [email protected] And for more on this and similar money topics, visit Kiplinger.com.)
(c) 2015 Kiplinger’s Personal Finance; Distributed by Tribune Content Agency, LLC.
Copyright © 2015, Chicago Tribune