How To Invest In Cuba

| About: Melia Hotels (SMIZF)


Long-term investment in a developing country.

Expansion is inevitable.

Money inflows will be substantial.

The 54-year embargo between Cuba and the United States is hopefully coming to an end. This is a no-brainer and will open the door to a massive inflow of investment, tourism, property expansion, and natural resource development. All good things for a country only 90 miles from the tip of Florida, such easy access for American travelers looking for new places to vacation. Yes, there will be a healthy amount of criticism while we sit and wait for Congress to approve the "lift," but there is a place to invest your money now that could pay off handsomely once all the chips fall into place. This is not a quick hit or a three to six month trade; I recommend dollar cost averaging into these positions over a period of one year to maximize a conservative strategy. As I do some more research, other ideas may come across my desk, but let us stick to this one for now.

The Cuban lodging market currently is dominated by small local operators and some European and Canadian chains, many of which often offer all-inclusive packages. Spain's Melia Hotels International SA (OTCPK:SMIZF) and Canada's Sunwing Vacations are among the active players there. Some other chains have expressed interest in hotel development in Havana. I will delve into Melia for the purpose of this article.

Melia Hotels Intl SA owns, manages, operates, leases, and franchises hotels worldwide. It operates through the Hotel Management, Hotel Business, Other Business Associated with Hotel Management, Real Estate, and Club Meliá segments. The company operates approximately 350 hotels in 35 countries on four continents under the Gran Meliá, Meliá, ME, Innside, TRYP by Wyndham, Sol, and Paradisus brand names. It also operates Club Meliá vacation club; develops and operates real estate properties; and engages in casinos, laundry, golf, and tour operations. It currently operates roughly 25% of the hotels in Cuba. The areas the company manages properties are Santiago de Cuba as well as Havana. The exotic beaches of Varadero, Holguin, and Cayos de Cuba are some of the most beautiful in the world, and the tourism industry will explode to these locales.

People are used to going to South Florida or the Keys, as well as the short trip to the Bahamas. This is something different, it is new, it is "wow." Let us not forget that before Las Vegas, there was Havana, and the gambling was huge back in the '40s and '50s, and if the government approves casino development, there will be a bidding war on the valuable real estate in that country. The decades of inactivity from the Castro regime is a blessing; the country has had such little economic progress, any type of refurbishment/development would be a welcome addition. This is not a one hit wonder, keep in mind this company has hotels in 35 countries. I just feel as relationships grow between the U.S. and Cuba, the aggressive business minds will create a stir and try to develop this country as fast as possible. The stock is relatively flat for the year, with a market cap of around $2.5 billion. Melia has around $400 million, or $2 a share in cash. I have linked its 2015 annual report to give you some more information. Revenues were up 16%, EBITDA up 29%, and net profit up 27%. This is a buy and hold, as it trades right in the middle of its 52-week range of $9.50 to $14.90.

Here is another link to a tremendous article outlining the issues going forward with the hotel industry in Cuba. As we all know, nothing is easy, and it will take time to hurdle the political, monetary, labor, infrastructure issues. There are other industries that will benefit while Cuba is being rebuilt. A tremendous amount if investment is needed. Let's not forget the trillions of dollars U.S. companies currently have in offshore banks. How great would it be to invest some monies into Cuba at this early stage once an agreement can be reached. Over time, I think it is inevitable that Cuba will become an island oasis to be enjoyed by millions of people in the coming years.

I would love to hear your thoughts on this. Historically, my articles have never crossed over political issues, but this presents an opportunity worth looking into.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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