Three ways to cash in on Cuba's free-market revolution

Like post-war Germany and post-Communist Russia, there's potential for massive profits from Cuba after Castro. No-one can guarantee a return to a free market economy but, to make the best returns, investors will need to get in early.

Early investors in Germany's post-war "economic miracle" and post-communist Russia raked in huge returns, says the Profit Hunter newsletter. It's important to be early into this kind of investment; by the time magazines are full of stories about a new opportunity, the real money has usually been made.

With this in mind, now seems a good time to consider how to profit from a post-Castro, free-market Cuba. This development can't be guaranteed but then neither could the massive profits available in Germany and Russia.

When the Soviet Union, which had propped up Cuba's communist economy, collapsed, Cuba's GDP growth nose dived. By 1993, the situation was dire enough for the regime to permit self-employment and foreign investment in tourism. As the economy climbed out of the pit, some 200,000 small business entrepreneurs out of a population of 11 million began to thrive. But this development undermined Castro's socialist ideology. The consequent authoritarian clampdown has fomented social unrest; in 2002, some 11,000 Cubans signed a petition for political and economic liberalisation.

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But now failing health means Castro's days look numbered and it's unlikely his brother, Raul, will be able to contain the clamour for liberalisation. This will be backed by US legislators of Cuban origin and two million Cuban-Americans, most of whom want to invest in the island. So Cuba should "change dramatically" when Castro dies. "Just look at the potential": there are only 3.2 cars, seven phones and 1.1 internet portals for every 1,000 people on the island, while its industrial infrastructure needs overhauling.

One play on Cuba, says Profit Hunter, is cement and concrete supplier Florida Rock Industries (NYSE:FRK), which has posted a profit for 33 years on the trot. As the closest big building-materials company, it should scoop up most of the rebuilding contracts once work gets underway on repairing Cuba's crumbling infrastructure.

Consider also Florida East Coast Industries (NYSE:FLA). This firm operates the only railroad with a connection to the large ports of Miami, while it also has interests in commercial property. Its South Florida properties should benefit from growth in post-Castro Cuba, while it will play a key role transporting goods to ports supplying the island.

Lastly, Copa Holdings (NYSE:CPA) isn't based in Cuba or the US, but its main business, Copa Airlines, includes Havana among its daily schedule of 110 flights to 34 destinations. Copa is increasing its fleet from 24 planes to 30 this year and plans to add another 50 to the total by 2009 and 78 by 2011. The company is on a growth path, even if Cuba remains burdened by economic embargo if lifted, the sky's the limit as business travellers visit Havana and former exiles return. The share price is likely to double in two years even without the Cuba effect. MoneyWeek thinks that the US housing-led slowdown is likely to cast a cloud over the short-term prospects of the first two companies, but Copa Holdings certainly seems worth a punt now.

by Graham Buck