Just yesterday, the Obamas made a historic journey just 90 miles south of the Florida coast.
Barack Obama is the first sitting president to visit Cuba in over 88 years — the first since Calvin Coolidge.
His presence in the country, as well as his meeting with Raúl Castro, sends a strong message regarding his stance on the current embargo, known as “el bloqueo” (“the blockade”) to Cubans.
“What we did for 50 years did not serve our interests or the interests of the Cuban people.” — President Obama on embargo of Cuba
The United States imposed this blockade in 1960, placing an embargo on all exports to Cuba.
Over time, however, metaphorical holes were drilled into the blockade: first for food and medicine after Cuba nationalized American-owned Cuban oil refineries, then later for humanitarian aid.
The U.S. recently lifted the embargo on goods sent to Cuba from Cuban-American citizens, and we also do not block trade with third parties.
In reality, the U.S. is one of Cuba’s largest trading partners.
“Since 2000, the U.S. has exported about $5 billion in agricultural goods such as poultry, corn, and soybeans to Cuba.” — CNBC
More recent policies allow U.S. banks to authorize transactions and invest in small Cuban businesses. Even insurance firms have permission to cover people living on the island.
Regardless of whether Congress chooses to repeal the embargo, it’s clear that our relationship with Cuba has thawed significantly since the Kennedy era.
As such, now is an ideal time for forward-looking investors to turn their eyes towards the Republic of Cuba.
“The Latin Las Vegas”
Cuba has a lengthy and colorful history of tourism, even with the American trade embargo in place. In fact, tourism accounts for 10% of the nation’s GDP.
Before the embargo, American tourism in Cuba boomed. Havana was a vacation hotspot known for hosting glamorous celebrities, inspiring Hemingway’s prolific texts, and, dare I say, encouraging a touch of the risqué lifestyle.
After the embargo, tourism in Cuba has remained successful. However, the majority of visitors travel from Canada.
“Neither the trade nor the travel embargo is being lifted, but Obama’s announcement will make it easier to get a license to travel to Cuba and will allow visitors to bring back goods to the United States.” — The Hill
But this could all shortly change. American tourism in Cuba is still greatly limited. Despite Obama’s executive order, tourism is still technically illegal… but when has legality ever stopped profit potential? (Marijuana is technically illegal, yet savvy investors are still poised for stellar gains in that sector.)
Now, we’re not suggesting you openly violate United States law. However, we do suggest that investors maneuver the available loopholes and legal options in order to profit from a sector that has been untouched for more than 50 years.
Restoring diplomatic relations in Cuba has opened the door for increased travel and commerce, causing cruise lines, commercial flights, and other travel stocks to boom.
American hotel and tourism-based firms aren’t wasting any time, either. Airbnb has already claimed the right to represent all private residences on the island, and it just announced that the listings will be opening on April 2nd.
Starwood Hotels and Resorts (NYSE: HOT) has positioned itself to become the first American hospitality chain to operate hotels in Cuba since the embargo was enacted more than five decades ago.
“Starwood will refurbish and manage the Hotel Inglaterra on the Parque Central near Old Havana and the Hotel Quinta Avenida, a 186-room business hotel in the upscale district of Miramar.” — New York Times
The stock has soared 25% in less than a month, signaling that the relationship with Cuba is at a pivotal point for the company.
“There are many opportunities for us and other American companies. This is just the beginning.” — Jorge Giannattasio, Vice President, Starwood Hotels and Resorts
Other travel and hospitality firms interested in the nation include Marriot, American Airlines (NASDAQ: AAL), JetBlue (NASDAQ: JBLU), Southwest Airlines (NYSE: LUV), and Delta (NYSE: DAL).
Prepare to see a host of other American firms in Cuba as well, outside of the hospitality and travel industries. With 11 million people, Cuba has the largest population in the Caribbean. That’s a sizable untapped consumer base.
“Cuba checks several boxes for investors: relatively large population, healthy and educated people, a growing economy, and a low public debt level.” — The Street
Alphabet Inc.’s (NASDAQ: GOOG) Google is positioned to set up Wi-Fi and other Internet access across the country. Google is joined by Sprint (NYSE: S), AT&T (NYSE: T), Verizon (NYSE: VZ), Netflix (NASDAQ: NFLX), PayPal (NASDAQ: PYPL), and other tech giants.
Should the embargo continue to thaw, most market projections show foreign investment in Cuba increasing from $427 million to $17 billion in the very near future.
For now, investment options remain indirect. The Cuban stock market, the largest in Latin America during its tenure, closed in 1959.
There is good news, though, according to Tom Herzfeld.
Herzfeld operates a closed-end firm, the Caribbean Basin Fund (CUBA), that specializes in Caribbean stock investing. Herzfeld, who developed the fund in order to invest in regional businesses during the embargo, believes that the Cuban stock exchange could be re-established in the next three to five years.
Until then, investors will need to navigate other ways of investing in the island. Or, if you’re interested in Herzfeld’s fund, check it out here.
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