24 February 2008

The WSJ on the Stocks that Stand to Gain if Cuba expands Foreign Investment

In an article by Corey Dade titled "Business Hold Few Hopes of More Trade Soon," quote:

Until trade relations between Cuba and the U.S. change, Robbert van Batenburg of Louis Capital Markets, an agency brokerage whose clients include hedge funds, recommends investing in companies already operating in Cuba. Imperial Tobacco Group PLC, for instance, owns a 50% interest in the Cuban state-owned cigar company Habanos SA through its acquisition last year of Spanish-French tobacco company Altadis SA. Cuban cigars would be a hot item in the U.S. if the embargo was lifted.

One of Mr. van Batenburg's favorite investments is Sol Melia SA, a Spanish hotel chain with two dozen properties in Cuba. He said he expects the company's annual revenue from Cuba might double quickly if travel restrictions were lifted, based on the volume of U.S. tourist traffic to nearby Puerto Rico and the Bahamas.

"It's going to be an avalanche of tourists who are going to visit the island, to see the buildings, the old cars driving around," Mr. van Batenburg said. "This is nostalgia at its best."

Robin Farley, a leisure analyst at UBS Investment Services, said building the infrastructure to support American travelers might take years. In the short term, that would mean a boon for cruise lines. "Their assets are mobile," Ms. Farley said.

Large U.S.-based hotel operators such as Global Hyatt Corp., Hilton Hotels Corp. and Marriott International don't own or operate hotels in Cuba, but yesterday there was fresh speculation about whether the companies would pursue development in the region.

"We believe Cuba has great potential as a tourist destination, and we will monitor the situation there and look for opportunities as they arise and become viable," said K.C. Kavanagh, a representative of Starwood Hotels & Resorts Worldwide Inc., which owns brands such as Sheraton and W Hotels.

The U.S.-Cuba Trade and Economic Council, based in New York, says food and agriculture producers that capitalized on the U.S.'s lifting of the ban on food sales to Cuba in 2000 are best positioned to benefit from relaxed trade. The U.S. is Cuba's top source for such products. Last year, U.S. companies sold about $438 million of food and agricultural products to Cuba, up from about $139 million in 2002, according to the council.

Commodities exported to Cuba include poultry, rice, wheat and soybeans. Cargill Inc. and Archer-Daniels-Midland Co. started shipping shortly after the ban was lifted and now consider Cuba an important market in the region. Cuba is the sixth-largest poultry and egg export market for the U.S., according to the U.S. Agriculture Department.