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Invest in the Cuba Libre

Written By Christian DeHaemer

Posted February 26, 2015

Cuba Embargo Could End by April

It seems like the Cuba talks are moving faster than anyone had anticipated.

According to the Christian Science Monitor:

Cuba would agree to restore diplomatic relations with the United States in time for the April Summit of the Americas if Washington quickly and convincingly removes the Caribbean country from a list of state sponsors of terrorism, a senior Cuban official said on Wednesday.

Diplomatic ties were severed in 1961, and negotiators for the two longtime adversaries will meet in Washington on Friday, following up on the first round of talks held in Havana last month.

The holdup seems to be that the Cubans are on the terrorist list, which impacts their trade and banks. There is a long list of grievances against the Cuban government, but most of them seem to be from over a decade ago.

For example, one of the FBI’s 10 most wanted, Joanne Chesimard, lives in Cuba. She executed a New Jersey policeman in 1979.

In 1996, the Cuban air force killed three Americans in international airspace.

More recently, in 2013, Cuba shipped a huge amount of heavy, mid-century weapons to North Korea under a load of brown sugar. This was discovered in Panama. Selling weapons to North Korea is against U.N. sanctions.

Swords into Rum Drinks

I’ve been to Cuba, and I know that the people are fantastic and the regime is your typical third-world dictatorship.

The Castro brothers and their minions are evil brutes who rule with fear and terror. A good portion of the planet is run by such people — and we trade with them. At some point, you have to let past grievances go.

It also seems to be — and history has shown this to be true — that ideas are contagious and exposing Cuba to hoards of American tourists would be a good idea… as well as a suitable punishment.

Face it: The embargo hasn’t worked for years. Cuba is full of Canadians and Europeans. They drink Coke, smoke Camels, and buy their gas from Shell. It was only the fear of losing the ex-pat Cuban vote in the very important swing state of Florida that kept the embargo going.  

That vote has diminished, and Obama has done the political calculus.

State Department

Now the American State Department is arguing that the terrorist list is a separate issue that can be discussed at a later date. This is because taking Cuba off the list would require a notification to Congress plus 45 days.

The thinking is that Obama wants a deal sooner than that so as to drive his immigration amnesty proposals. Cuba has wanted a deal for years, if not decades.

The deal could happen in the next two months.

CUBA Libre: How to Play It

When Obama first started talking about opening ties with Cuba, the Herzfeld Caribbean Basin Fund Inc. (NASDAQ: CUBA) doubled in a week:

cuba1

The closed-end fund seeks to invest in companies that will make money on the opening of Cuba. It owns shippers and port dredgers, airlines and gravel companies. The fund has 3.71 million shares with 3.49 in the float. It also pays a 6.89% dividend.

Due to its fantastic ticker symbol, CUBA, the fund acts as a proxy play on Cuba the country.

When there is a rumor that Castro has died, the fund launches. When Cuba gets hit by a hurricane, the fund falls, etc.

If the embargo ends, it will likely go back up to $14. But if they can’t get a deal, the price will likely fall back to its range between $7 and $8. It’s a low-risk, high-reward trade.

Buy CUBA. Put your stop-loss at $7.90 and your sell target at $13.50, and let it ride.

Caribbean Airline

Another way to play the opening of Cuba is with a small, undervalued Caribbean airline I’ve discovered.

Its flights crisscross the region and will see an improvement in pricing and margins when free travel to Cuba is allowed. The airline is aligned with United Continental Holdings (NYSE: UAL), so it will get the Americans as well.

All airlines are moving up as travel increases and oil prices drop. This one has the extra kicker of being in the right place at the right time.

I will have the full report on Friday in Crisis and Opportunity. Join us and profit.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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