Finding a potential Oxstone in the emerging markets cement business
By Liu-Yue (Louie) Lam, Oxstone Capital Management,
CX, Cemex – Mexico, $9.31, 11/10/2010
CEMEX is the world’s 3rd largest cement company. The company is truly global with operations in every region around the world. CEMEX was founded in 1906 and is considered the corporate national pride of Mexico. It is highly regarded for its use of technology and innovation in the cement industry and for its terrific management team.
However, an ill timed expansion strategy left it with a mountain of debt. But expect bankers and governments to play nice with Cemex since it’s one of those ‘too big to fail’ businesses and is also a strategically important business in Mexico. I believe due to Cemex’s symbol as a national pride – a home grown global corporate giant, the government will never let Cemex fail.
This past summer my lovely wife and I honeymoon in Croatia and across the Balkans. I could not help but notice the numerous Cemex cement plants dotting the landscape among the beautiful sea side views. Cemex is there because it sees great potential in doing business with many emerging market economies including south east Europe. In addition, Asia and Africa presents enormous opportunities for infrastructure development for years to come. Cemex is a perfect leverage play on the global economic recovery story and on the emerging markets infrastructure development story. A review of the institutional holders includes very highly regarded value investing giants such as Dodge & Cox and LongLeaf Partners.
Although, heavy with debt, Cemex will not fail. In this situation Crisis = Opportunity. Cemex is still a world class company with several competitive advantages including state of the art technology and dominant market positions in its home court – Mexico. It continues to receive favorable low cost energy supplies from Mexico. Trading at only 57% of book value there’s plenty of margin of safety. It is currently trading near 52 weeks low and decade lows. I believe Cemex will provide plenty of upside rewards for the investor with time and patience.
Categories: Commodities, Finding Oxstones, Latin America, Oxstone Investment Commentary, Stocks