Cuban Connections

08/26/2015 10:00 am EST

Focus: GLOBAL

Nick Hodge

Founder and President, Outsider Club

Contrarian investor Nick Hodge, of Like Minded People, sees long-term upside—for those with a three-to-five year time horizon—in developing investment opportunities in Cuba.

Steven Halpern : Our guest today is Nick Hodge, founder and president of the Outsider Club and editor of Like Minded People. How are you doing today, Nick?

Nick Hodge: I’m doing very well, Steve. Thanks for having me.

Steven Halpern: Well, thank you for joining us. First off, could you tell our listeners a little about your newsletter Like Minded People and is it fair to say that along with your contrarian approach, you embrace a libertarian style approach towards investing?

Nick Hodge: Sure. Like Minded People is a community of what I would like to think are like minded people—as the name implies—and we certainly embrace a high degree of individualism and self-reliance, so not only libertarian as a world view and political view, but as it comes to really living our investment lives as well.

We preach doing things ourselves, managing our own investments and really taking responsibility for our investments and it also translates in to what we invest in. We avoid banks, we have lots of gold stocks—junior mining stocks and income stocks—so we’re trying to create a complete portfolio that allows us to be self-reliant in the other pursuits in our life.

Steven Halpern: This type of approach also puts you counter to what the general thought on Wall Street might be at times, correct?

Nick Hodge: I would say more than at times. We pride ourselves on being contrarian and we’ve done well, thus far, with that mantra.

Steven Halpern: Now, today, we’re going to cover two stocks that are potential beneficiaries of recent developments in Cuba. First, do you think that the current trends portend greater opportunity within Cuba as well as for investors who are looking to invest in this market?

Nick Hodge: Well, I think, absolutely. You have a formerly communist country opening up its borders for the first time, and while they still may be communist, they’re embracing a degree of capitalism. We’re now allowing cruise ships to go there, we’re now allowing Americans to travel there, and I will be traveling there over the next two months. I really think it’s a ground floor opportunity.

If you look at history, look at the opening up of Myanmar—also referred to as Burma—these are ground floor opportunities when countries open themselves up for investment and that’s exactly what you’re seeing in Cuba right now. Not only for its citizens, as you said, but also for investors from the states and elsewhere.

Steven Halpern: Now I think most of our listeners would be surprised to find out—as you point out in your latest report—that there are only two countries in the entire world where people can’t buy and drink a Coca-Cola and those are North Korea and Cuba and you note for Cuba that might now be changing. How are you investing in this potential trend?

Nick Hodge: Well, before I get to how I'm investing, let me just tell you a story. I was reading about a gentleman who said that when his family got Coca-Cola for the first time, his aunt got it from a friend of a friend of a friend, so four times removed they got one 12-ounce can of Coca-Cola and he shared it with about a dozen relatives all huddled around the kitchen table.

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They were amazed—he said—when they got to taste this Coca-Cola and so I think that sort of foreshadows the demand that could exist in Cuba for a US product like Coca-Cola.

The way we’re investing in it is through a company called Coca-Cola FEMSA (KOF). Basically, that’s the Mexican based distributor and bottler of Coca-Cola of which the Coca-Cola you know is 28% and a conglomerate in Mexico called FEMSA owns 48%, with the remaining quarter of the company available for investment by the public.

Like I said, it’s a South American bottler already provides Coca-Cola , beer, other soft drinks, waters to many South American countries—including the growing Brazil—and it’s my thesis that they’ll benefit from the opening up of Cuba to be allowed to import and bottle Coca-Cola.

Steven Halpern: So, while a company like Coca-Cola—the main company—it may not move the needle for them to expand there, your view is that this bottler with the focus on South America could see a noticeable market improvement.

Nick Hodge: Very much so, about 40% to 45% of Coca-Cola FEMSA’s revenue comes from South American countries, and so yes, moving the needle could very much happen by opening up an entire new country to a drink and a product that they haven’t had and that should prove to be extremely popular.

Steven Halpern: Now your also recommending a Telecom play that you believe is well positioned to benefit from what you call the Cuba connection. Can you tell our listeners about this opportunity?

Nick Hodge: Sure. The company is called IDT Corporation (IDT). It’s a North American based Telecom company and the angle here is that it’s been the only company approved in the US so far to connect Cuba to the US via phone lines and Internet.

So, again, you have the opening up of a country that only one in ten people have a land line, that only 3.4% of the country is connected to the Internet and at IDT you have the only company that’s been approved to provide those services between the US and Cuba. Not only that, it provides also a money transfer service, which has proved greatly successful already.

Something like 40% to 50% of Guatemalans in the United States use this service to transfer money back home and so it’s not a far stretch to say that once Cuba opens up, this service will benefit from money transfers between the US and Cuba as well.

Steven Halpern: Now, for investors interested in these situations, could you explain what your time horizon with these investments are—and also—if you could highlight the risks that people should be aware of when looking at an emerging market like this.

Nick Hodge: Well, I’m not a trader, so I always try to go into an investment looking at three to five years and I think that’s pretty good time horizon to put in to this.

Look, the flags at the embassy just went up last week, John Kerry was there speaking some butchered Spanish, and so, as I say, this is just the start, I mean, it should only expand over the next couple of years. We have cruises going there for the first time and the gates are only going to open wider.

Steven Halpern: Again, our guest is Nick Hodge, editor of Like Minded People. Thank you for your fascinating insights today.

Nick Hodge: Thanks again for having me Steve.

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