Cuban Opportunity: President Trump Vs. Castro's Death

Fidel Castro's death could renew investor attention to the Herzfeld Caribbean Basin Fund, Inc (NASDAQ: CUBA), a closed-end investment fund with direct exposure to the Caribbean Basin country.

In a research report dated Tuesday, Jon Hickman of Ladenburg Thalmann suggested Castro's death could mark the beginning of a new era in Cuba and usher in improved economic relations with the United States.

However, the election of Donald Trump as president serves as an offset, as he made many statements in which he said he will reverse many of President Obama's executive actions regarding Cuba.

In addition, the Helms-Burton Act dictates that the U.S. embargo on Cuba cannot be lifted until a Cuban government is not run by Fidel Castro, or his brother and current leader, Raúl Castro.

R. Castro did say he plans on stepping down in 2018 at the end of his five-year term and may be replaced with Miguel Diaz-Canel — a former minister of higher education and not a member of the military.

Opening Of Cuba

According to Hickman, the relationship between the United States and Cuba continues to normalize, and the trend is unlikely to reverse in the near term.

The analyst added that he is "encouraged" by recent travel policy restrictions between the two companies, which could ultimately result in the opening of Cuba as a "material economic partner."

With that said, Hickman believes CUBA's share price should trade near its recently historical average of a 22 percent premium to its net asset value (NAV). Accordingly, the analyst believes a 20 percent premium to the current NAV ($7.79 as of December 9) would offer an "appropriate" valuation.

Shares remain Buy rated with a price target raised to $9.25 from a previous $8.00.

Image Credit: By Gastón Cuello (Own work) [CC BY-SA 4.0], via Wikimedia Commons