(MONEY Magazine) – NELSON MANDELA'S INAUGURAtion in May as South Africa's first black president was more than a media spectacle set to the foot-stomping beat of the toyi- toyi. Symbolism also abounded in the packed crowd of world leaders who had long championed sanctions against this former bastion of white supremacy. There was Fidel Castro, whose blueprint for socialist paradises turned Cuba and large parts of Africa into living hells. And there was First Lady Hillary Clinton, the small-time commodities speculator who from 1978 to 1980 parlayed $1,000 into $100,000. Among her winners during the period was a 63% profit on shares of De Beers, the country's famed diamond house, at a time when more and more Americans boycotted South African stocks because of apartheid. Crazy as it may seem, now could be the time for you to make money in the new South Africa. Don't be put off by the TV quick takes of a place violently torn between the First and Third Worlds. Megabuck investors are betting on the resource-rich nation's huge potential for economic growth and leadership of a continent starved for progress (see the box on page 110). You can too, as explained below, via both mutual funds and South African stocks traded in the U.S., often at bargain prices. Take Tony O'Reilly, chairman of $7 billion (annual sales) H.J. Heinz in Pittsburgh. He's also principal owner of an Irish publishing group that in February paid $32 million for a 31% stake in $208 million Argus Newspapers, South Africa's main chain. "Freed from sanctions, this economy is now poised to become one of the world's most dynamic," predicts O'Reilly. " Newspapers are a great way to profit from this growth as well as the follow-on rapid rise in literacy." Among blacks, who make up about 75% of the country' s 40 million people, roughly half are illiterate, vs. 1% of whites (13% of the population). What about Heinz's 57 varieties? "We'd love to do a joint venture in the South African food sector," he says. "But we're up against well-financed local competitors that snap up the good deals." I headed for South Africa to learn more. Friends thought I was nuts. Like most Americans, they saw stereotypical white villains reluctantly releasing their stranglehold on black victims who'd soon demand their share of the South African dream: BMWs, boarding schools and beach houses. (Both BMW and Mercedes have assembly plants there.) Even sources well versed on South Africa worried that Mandela's promised panacea -- a five-year, $11 billion care package of new jobs, housing and schools for the poor -- wouldn't heal the wounds of apartheid fast enough. "I'm concerned the outcome might be hyperinflation, not high real growth," says Jim Rogers, a wealthy Wall Street dropout and author of Investment Biker. (To be published next month at $25 by Random House, the memoir recounts his motorcycle grand tour of off-the-beaten-track markets like South Africa's.) Good point. A month after the election, Mandela's winning African National Congress (ANC) party revealed that its five-year plan would cost $23 billion, twice as much. The timing of my arrival 10 days before the historic all-race vote was hardly auspicious. Campaign clashes between the ANC and its archrival, the Zulus' Inkatha Freedom Party, were growing bloodier. A state of emergency was in effect as I crossed the country, from Johannesburg's black ghettos tense with the graffiti of agitprop (FED UP? DIAL AK-47) to Cape Town's walled white suburbs besieged by gallows humor (buy now while the shops last). Still, the prominent economists, money managers and executives I interviewed were remarkably calm and upbeat. The hope is that an ANC-led government has the legitimacy to crack down on the violence that's ravaging black communities and spreading to white ones. The fear is that Mandela's new coalition cabinet could crack under the strain. The consensus: Patient investors on the Johannesburg Stock Exchange, the world's 12th richest at $208 billion in total value, will be handsomely rewarded. Just be vigilant for horror stories that make stocks go bump in the night -- and the buying opportunities that may ensue. Also consider: -- Mandela is trouncing the Dow. Since 1990, when he was freed after 27 years as a political prisoner, the JSE Industrial index (JSEI) of 72 stocks has surged 138% -- nearly quadruple the Dow's 36% rise. How about '94? The JSEI lately was up 19% -- tops among the world's major market indexes including the Dow (down 1%). One reason for this vote of confidence: Mandela's ANC has its own two-year-old pension fund riding largely on local growth stocks. The portfolio returned a heady 53% last year, vs. the JSEI's 30% and the Dow's 17%, says fund manager Jac Laubscher of $21 billion Sanlam, a major insurer based near Cape Town. -- Wall Street is hot to trot. Since February, U.S. marketers have launched three closed-end stock funds that are targeted on South Africa and traded on the New York Stock Exchange. They are $121 million Morgan Stanley Africa (ticker symbol: AFF lately $11), $68 million New South Africa (nsa; $12) and $85 million Southern Africa (SOA; $13). This $274 million in combined assets dwarfs the $48 million in net stock purchases (less sales) that U.S. investors made on the JSE in 1993. There used to be a lot more: "Foreigners still need to spend $2 billion net on the JSE just to match divestments from 1985 to 1992," says Carmen Maynard of Johannesburg's Martin & Co., manager of the New South Africa Fund. And the new money is a pittance compared with the booming JSE's potential draw from the $68 billion net U.S. purchases of stocks overseas last year. -- Commodity prices are rebounding. The Dow Jones Futures index of 12 commodities jumped 19% over the past 12 months. The upturn has revived hopes in South Africa's huge mining sector (10% of the $110 billion economy) that the decade-old slump in hard assets is history. The nation has 40% of world gold reserves as well as the top producer, $13 billion (in assets) Anglo American (ANGLY; its American Depositary Receipts recently traded over the counter at $45; 1.9% yield). Anglo owns 33% of $3 billion De Beers (dbrsy; $21; 3.3%), the cartel that controls 80% of the $9 billion world market for cut diamonds. South Africa is also a leader in manganese (82%), platinum (66%), chromium (54%), uranium (12%) and coal (9%). -- There's lots of room to grow. From a base depressed by three years of deep recession, the economy surged 8% in real terms in the third quarter of 1993, then 6% in the fourth, and figures to expand a bustling 5% annually for the rest of the 1990s, says Brian Kantor, an influential economist at the University of Cape Town. While his forecast may sound overly optimistic, it's hardly unprecedented. "Most people have forgotten that pre-sanctions South Africa averaged 5% real growth rates in the 1970s, for example, vs. 2.8% for the U.S.," he says. And over the next two years, Kantor predicts, "growth rates can accelerate to 7%" fueled by rising exports, consumer spending and utilization of long-idled plant capacity. He adds: "If I'm right, tax revenues should also grow fast enough to finance the ANC's increasingly ambitious five- year plan." -- Bargains are still plentiful. Because South African stocks were long shunned by foreign investors, many trade for less than 75% of what an acquirer would pay for a comparable U.S. business, notes Mark Breedon of $123 billion Alliance Capital, the London-based manager of Southern Africa Fund. "Buy-out specialists like Henry Kravis and Lord Hanson would have a ball," he says. Morgan Stanley also calculates that South African stocks as a group were enticingly priced at 19 times earnings for the past 12 months, vs. 27 for U.S. stocks and 29 for the firm's MSCI World index. For Americans and other nonresidents of South Africa, notes Colin Fiddes of accountant Ernst & Young in Johannesburg, shares on the JSE are even cheaper by 23%, or 14.5 times earnings, half the norm for the world. The reason is the nation's quirky dual currency created in the apartheid era to arrest capital flight. The value of the "financial" rand that foreigners use to buy securities has long traded in currency markets at a discount (lately 23%) to the "commercial" rand used in all other transactions. Thus foreigners now get a price break on stocks whose earnings and dividends are stated in commercial rands. Another windfall awaits nonresidents if, as many analysts predict, the financial rand is officially redeemed in a year or two at a 10% higher price. If you're eager to broaden your profit horizons to South Africa, start with the advice of the noted investment pros below. They won't ply you with ebony- and-ivory platitudes. To the contrary, they know the investor's atlas of this sunny, often stunning landscape (like California's but three times larger) will be subject to sudden and possibly bone-jarring detours. Mutual funds are ideal vehicles for small investors. An alternative is direct ownership via South Africa's 86 ADRs. In fact, investors should view Anglo American's ADR as a mutual fund, recommends Paul Ferguson, chairman of the brokerage Fergusson Bros. in Johannesburg. That's because Anglo, plus the companies it has longstanding stakes in, represents a broad cross section of 43% of the JSE's total value. Boe Marsh of Saicor Securities, a Wall Street specialist in South Africa, instead prefers holding company Genbel (GIVLY; $1.75; 4.2%). Rationale: 40% of its $1.2 billion assets are in an actively managed portfolio that's beaten the JSE every year since 1990. (The ADR is up 19% in '94.) At MONEY's request, four other pros combed portfolios to recommend 10 stocks, drawn from three timely investment themes, that figure to outperform the JSE's projected 20% price rise over the next 12 months. Six have (or will soon have) ADRs traded over the counter in the U.S.; the other four can bebought on the JSE via big U.S. brokers. The three themes: -- The lift-off of heavy industry. Years of sanctions, recession and downsizing have whipped many export-driven manufacturers and miners into great shape to expand in step with recoveries at home and abroad. But I wanted only picks whose stock prices still reflected little of the cyclical earnings spurt that analysts envisioned over the next couple of years. For broad exposure to the upturn, Gerrit Smit, head of research at Sanlam's $10 billion asset management unit near Cape Town, is buying $2.8 billion mining house Gencor (GNCLY; $2; 1.7%), which is already expanding its stainless-steel and aluminum smelting operations. Richard Stuart, research chief at Martin & Co., recommends $2.8 billion steelmaker Iscor (ADR in the works; 2.4 rands, or 69", a share; 1.1%), which has a 75% share of its domestic market, and $540 million Samancor (SMNCY; $9.50; 1.4%), the world's No. 1 producer of high-margin manganese and chromium alloys. Mark Breedon of Alliance Capital seconds Iscor and adds $625 million Impala Platinum (impay; $14; 2.5%). It's a major supplier of the key metal in car catalytic converters, now fast becoming standard equipment worldwide. -- The rise of black living standards. Job creation is the keystone of the ANC's five-year, $23 billion plan to build 1 million low-income homes, electrify another 2.5 million houses and provide 10 years of free education to all. If people have a house, it's hoped they'll strive to buy things for it. So our experts searched for bargains among both building and consumer stocks. Stuart is betting on $284 million Anglo Alpha Cement (ANGAY; $25; 1.9%), the No. 2 producer with a growing 35% share of its market. His consumer pick is $6 billion food conglomerate C.G. Smith (ADR in the works; 12 rands/$3.50; 2.3%), with 43% of its profits from packaging giant Nampak. Says Stuart: "As blacks' incomes rise, so will their demand for convenience foods." Ditto packaged financial services, notes James Inglis, head of insurer Liberty Life's $6 billion asset management arm in Johannesburg. He's keen on two institutions, both traded only on the JSE, with strong ties to the burgeoning black middle class. One is $1.7 billion insurer Metropolitan Life (31 rands/$6.63; 2.6%), in which black investors led by Nthato Motlana (Mandela's physician) have acquired 10%. The other: $13.6 billion commercial bank Nedcor (27 rands/$6.25; 3.2%), a leading lender to black home buyers. -- The allure of sun, surf and sin. Tourism, another wellspring of construction and other entry-level employment, will be a huge beneficiary of a politically stable South Africa. Business is already strong -- up 12% overall last year -- thanks to heightened international awareness of the nation's 1,800-mile coastline, wildlife reserves and casinos. For value-minded investors, Smit of Sanlam recommends both the stock and no-frills rooms of City Lodge (JSE, 12 rands/$2.40; 2.6%), a fast-growing $16 million chain of 13 hotels. For high rollers, he recommends $570 million casino chain Kersaf (JSE, 39 rands/$10; 3.4%), the country's largest and the developer of the swank new Lost City resort in Sun City. "It's like Las Vegas," adds Smit, "but with an African theme for good luck."

BOX: AFTER SANCTIONS

Honeywell, IBM and Sara Lee are among the 152 U.S. firms active in post- apartheid S.A., reversing an outflow of 209 U.S. firms from 1985 to 1990.

S.A. EXPORTS Percentage change in total share by region from 1990 to 1993: North America 67% Africa 38% Asia 2% Europe -10%

Vins vieux: S.A. is No. 9 in world wine production, which began with French Huguenot settlers 300 years ago.

S.A. IMPORTS Percentage change in total share by region from 1990 to 1993: Africa 28% North America 19% Asia 11% Europe -9%

BOX: Fund mini-market

S.A. boasts 60 domestic mutual funds with total assets of $5.7 billion. Percentage of South African adults who invest in them:

Whites 18% Blacks 1% Others 4%

CHEAP STOCKS Three closed-end funds invested mostly in South African stocks recently traded on the NYSE at enticing discounts of as much as 14%

HITTING PAY DIRT Last year's top-ranked U.S. mutual fund, with a 265% return, was Lexington Strategic, with all of its $85 million assets in S.A. gold stocks.

TRADE IN THE U.S.A. S.A. ranks No. 4 in the number of stocks that sell in the U.S. as ADRs. The ADR lineup: Britain 210 Australia 174 Japan 147 South Africa 86

BOX: JEWEL OF AFRICA

South Africa's share of the continent's total: Electricity 52% Telephones 37% GDP 33% Population 6% Land area 4%

There are 60 phone lines for every 100 whites, vs. one per 100 blacks.

GROWTH'S IMPERATIVE If the S.A. economy can sustain its 5% growth rate to 2000, forecasts Anglo American Corp., the government will have 55% more to spend annually without increasing tax rates.

LIQUID ASSETS Wall Street veteran Jim Rogers has invested in these three S.A. vintners with shares traded on the Johannesburg Stock Exchange (recent prices in dollars): KWV $9.50 Distillers $6.75 SFW $3.75

BOX: VIOLENCE'S TOLL

People (mostly black) killed in political violence in 1993: 3,706

Murder rate (1993 deaths per 100,000) S.A. 50.0 U.S. 9.5

PEOPLE POWER Percentage of new S.A. parliament's 400 seats won by minority parties dominated by whites: 25%

Percentage of whites in the country's 40 million population: 13%