7 Stocks to Profit From Cuba's Coming Boom

American companies have long dreamed of setting up shop in Cuba—rebuilding its roads, tapping its vast mineral deposits and turning the Communist country into the Disneyland of the Caribbean. A couple of guys named Castro (not to mention a series of U.S. administrations) haven’t exactly shared that vision. But after more than 50 years of hostility, relations between the U.S. and Havana are thawing, and Cuba is now eager for foreign business. That promises to clear the way for global companies to eventually cash in.

Though you won’t see a Hilton in Havana tomorrow, the easing of U.S. sanctions is ushering in a pro-business era for the country. Under new government rules, U.S. banks can handle transactions from Cuban banks, and U.S. companies can export a wider array of goods, including telecommunications equipment and supplies for “private entrepreneurs.” Companies can now open offices, warehouses and stores in Cuba. The U.S. has also relaxed travel restrictions for its citizens, who no longer have to carry wads of cash or traveler’s checks; they can use credit and debit cards in the country.

Despite these changes, a complicated web of U.S. laws, including the Kennedy-era trade embargo, prevents American firms and most foreign companies from doing much business in Cuba. U.S. companies aren’t allowed to extend credit to Cuban customers, a major impediment for a cash-strapped economy. The U.S. also blocks Cuba from tapping financing through such institutions as the World Bank.

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Havana makes life difficult for business as well. The government keeps a tight leash on labor, requiring foreign companies to use government “employment agencies” to hire workers and set wages. Protections for legal and property rights remain questionable in a country that confiscated vast amounts of privately owned property after the Communists took control in 1959. The upshot is that only a handful of publicly traded global companies do significant business in Cuba, among them Spain’s Melia Hotels (symbol SMIZF, $14) and Canadian miner Sherritt International (SHERF, $0.60). (Prices are as of September 30; only stocks in boldface are recommended.)

Indeed, without some major political and economic reforms, the country isn’t likely to experience a sea change in foreign investment, says Tomas Bilbao, head of the Cuba Study Group, a nonprofit organization that promotes Cuban development. “The Cuban government needs to create a more attractive investment environment,” he says, “and the U.S. needs to get out of the way.”

Nonetheless, Cuba is taking steps to lure foreign business and liberalize its economy. A law passed in 2014 included measures to encourage more foreign investment in the country, and the government created a special economic development zone around Mariel Bay, aiming to turn it into a regional shipping hub with looser labor rules for foreign companies. Also on the agenda: unifying the country’s dual-class currency system and reforming state-run enterprises, which account for about 25% of the economy. “Business conditions will improve because Cuba needs to attract more foreign investment,” says Paolo Spadoni, a Cuba expert at Augusta University, in Augusta, Ga. “Companies have a sense of urgency to be there because they think the embargo will end soon.”

As the largest economy in the Caribbean, Cuba offers tantalizing possibilities if those reforms do come. Its workforce is both highly educated and underemployed. Cuba has vast mineral deposits, a developed biotech industry, ports close to the U.S., and gorgeous beaches for resort development.

Investing in Cuba-related stocks now means taking a flier on companies that don’t do a meaningful amount of business, if any, on the island. Indeed, it could take years for an investment in Cuba to pay off. Some stocks look attractive in their own right, though, and could get a lift from Cuba-related business if the country does open up.

Carnival (CCL, $50), for example, may be the first major cruise-ship company to drop anchor in Havana. It plans to start “cultural exchange” cruises to Cuba under its Fathom brand in the spring of 2016, pending approval by Cuban authorities. Carnival CEO Arnold Donald says Cuba presents a “huge opportunity” for the industry and could “refresh” the company’s lineup of Caribbean cruises.

With more than $15 billion in annual revenues, Carnival will have to sell a lot of Cuban cruises to move the sales needle. But analysts expect Carnival’s earnings per share to climb by 28% in its fiscal year that ends in November 2016—healthy growth with or without Cuba. The shares yield 2.4%, compared with 2.2% for Standard & Poor’s 500-stock index.

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Airlines such as American Airlines Group (AAL, $39) and Panama-based Copa Holdings (CPA, $42) could pick up Cuban business, too. With a major hub in Miami, American offers more charter flights to Cuba than any major U.S. carrier. It’s starting charter service from Los Angeles and says it’s ready to begin regular commercial flights once they’re allowed. Even then, Cuban business would likely represent a tiny fraction of American’s $42.6 billion in annual revenues. Meanwhile, American’s stock looks exceptionally cheap, selling for just 5 times estimated earnings.

Copa is already the largest foreign airline in Cuba, with six flights to and from the island daily. Cuba trips accounted for just 1.3% of its 2014 revenue of $2.7 billion, and sales have been hammered by a slowdown in Latin American travel. Still, Copa looks “poised to profit from any pickup in flights” to Cuba, according to a report by the Herzfeld Caribbean Basin Fund (CUBA), a closed-end fund that was set up in 1993 to try to profit from Cuba-related businesses. At last word, Copa was its top holding.

A building boom in Cuba could benefit Vulcan Materials (VMC, $89), the largest U.S. producer of construction materials such as crushed stone, gravel, asphalt and concrete. Along with more than 440 production sites in the U.S, the company runs a large quarry and marine terminal on Mexico’s Yucatán Peninsula—a prime location for exports to Cuba. Vulcan’s profits have rallied with the recovery in U.S. housing. The stock is pricey, at 32 times estimated year-ahead earnings. But Vulcan may deserve the rich valuation, as analysts expect the company’s profits to soar 66% in 2016, to $3.47 per share.

Several Mexican companies may also be Cuba winners. Latin American telecom giant America Movil (AMX, $17), cement maker Cemex (CX, $7) and soft drink bottler Coca-Cola Femsa (KOF, $69) look well positioned to gain sales in Cuba, according to the Herzfeld fund. Mexican stocks, along with other emerging markets, have performed poorly over the past year, and these three, which trade in the U.S. as American depositary receipts, are no exception. But the companies are all leaders in their respective industries and should recover over time. A few years from now, Americans might even get to toast their gains over Cuba Libre cocktails in a Havana beach cabana.