Fidel Castro Gone, Herzfeld Wins (CUBA)

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Herzfeld Caribbean Basin Fund Inc. (NASDAQ: CUBA) has been "the go-to trade" for Americans that wanted to invest in the potential normalization of US-Cuba relations. Until today, that always seemed more of a mystical potentiality rather than a finite event with a known time frame. 

With the news that Fidel Castro will not be returning to official power to run the country, this will get a lot of attention today and this week.  We’d advise traders that the swings we see this week should be quite wild.  If you want to see how "Castro-rumors" in the past have moved this closed-end fund, look at the move in late-2006 and then again in early to mid-2007.  This saw similar moves in the earlier part of this decade and in the late 1990’s.  You can find more historical data at the site.

Unfortunately we are still a long ways off from any normalized relations.  Fidel’s brother Raul has been in charge of the country for much of the last 18-months as Fidel has "been ill."  But the good news is that this is at least step one of a ten or twenty step process.  We have covered this one before for our "10 Stocks Under $10" letter, and this one is now looking like it can come to fruition.

We’d beware of any major gap-ups that are too high in this closed-end fund because its total share count is so small and the float is extremely thin.  Herzfeld also closed at a discount to its N.A.V. last week, and this used to trade at a slight premium to a large back when this was above $10.00.

Be advised that this recently had a float of about 1.7 million shares before the last distribution and its market cap was only about $12.5 million, but that appears to have roughly doubled after a fairly recent rights offering.  It has an extremely thin daily trading volume, so today’s moves are going to probably be quite exaggerated.

Jon C. Ogg
February 19, 2008