JFK's Cuban Portfolio

by Carl Delfeld

JFK's Cuban Portfolio

by Carl Delfeld, Investment U Senior Analyst

Thursday, September 8, 2011: Issue #1596

What is it about Cuba and cigars?

The CIA tried to get rid of Castro by planting both exploding and poison cigars.

Then JFK saw his cigar opportunity and seized the day.

In February 1962, an executive order imposing a trade embargo on Cuba sat on his desk awaiting his signature.

He called in his bon vivant press secretary Pierre Salinger and gave him an important mission: Gather 1,000 Petit Upmann Cuban cigars by the next morning.

Pierre was up to the task and more, delivering 1,200 to the oval office at 8 a.m. the next morning. JFK promptly signed the executive order...

The Difficulties With Investing in Cuba

For over half a century, the Castro brothers have been at the helm of Cuba and its economy is a complete mess.

As if frozen in time, ration books for food are still widely distributed, 85 percent of the workforce is on the state payroll and Cubans can't even buy or sell private homes.

There are small signs that change is on the way, with some foreign companies already investing in joint ventures. But as the Castro regime power ebbs, will the investment really begin to flow?

We all know that America's trade embargo limits business dealings with Cuba and that, even if you pass through all the regulatory hoops and find a state-owned firm as a joint-venture partner, the country is a very tough place to do business.

In addition, political pressure to keep the trade embargo remains stubbornly strong. But the many restrictions on Americans traveling to Cuba seem to be cracking.

In May 2009, President Obama, by executive order, lifted travel restrictions for Cuban Americans wishing to visit their relatives on the island and increased the amount of money they can send back to relatives in Cuba.

For the first time ever, Americans can send such money to help Cubans start small businesses. Furthermore, in 2010, the House Agriculture Committee voted to reverse the ban on U.S. citizens traveling to Cuba and to ease restrictions on the sale of American commodities there.

Investing in Cuba's Burgeoning Tourism Industry

The momentum is there, but the timing of the lifting of the travel ban is uncertain. What we do know is that when it does, Cuba's tourism industry will take off like a rocket. Douglas Clayton of Leopard Capital, a frontier markets private equity firm, points out that Florida has 20 times more tourists, one reason its economy is 12 times the size of Cuba's.

A way to play this is with the Herzfeld Caribbean Basin Fund (Nasdaq: CUBA), a closed-ended fund that's chock full of tourism-oriented firms.

It's anything but a pure play, but its portfolio of travel, cruise, banking and telecom companies will benefit from any jump in Cuban tourism.

Some of the fund's top holdings include the container shipping company Seaboard (AMEX: SEB), Florida-based distributor of air conditioning and refrigeration equipment Watsco (NYSE: WSO), and cruise line kings Royal Caribbean (NYSE: RCL) and Carnival (NYSE: CCL).

The fund also noted that it's adding a small amount of "highly speculative companies that have a pure Cuba business plan." The more of this focused aggressive investing, the better, from my point of few.

Interestingly, if his Cuban cigars ran out, JFK had a back up strategy in place - La Flor de la Isabela Alhambra cigars from the Philippines.

This is another good lesson for all of us. Always have a fallback plan.

Lastly, in 1962, JFK's cigars went for $0.25 each, but now they go for a cool $7 each. His decision to stockpile just before inflation took off was not only legal, but shrewd, as well.

Are you ready to exploit the cracks in Cuba's isolation?

Good investing,

Carl Delfeld

comments powered by Disqus