None of the downgrades were an outright sell. Instead, they went from buy or overweight to hold or neutral.
In this take-no-prisoners market, Cemex is an obvious target. As goes the worldwide housing sector, so goes Cemex. But is that any reason for the stock to plunge to a 52-week low of $7.90 from $33.40?
We don’t think so.
Cemex is a major player. The company has operations in more than 50 countries that produce 96 million metric tons of cement annually. Cemex is has become one of the largest cement companies in the world. Consider it the IBM of cement.
Now with some recent news, Cemex could be poised for a rebound.
For starters, Mexican president Felipe Calderón unveiled plans for $4.35 billion in emergency spending on infrastructure next year.
Unlike the Bush administration, whose trickle-down economics favors handouts to the wealthy, Calderón is following in the footsteps of President Franklin D. Roosevelt’s New Deal, which created public-works jobs for ordinary Americans.
Calderón’s $4.35 billion infrastructure build-out is slated to begin in 2009, pending approval by Mexico’s congress.
It would be used to build infrastructure projects such as bridges and highways that “will bring direct social benefits to millions of Mexicans and help keep our economy on track,” Calderón said.
In its 3Q guidance issued on September 11, Cemex noted that the “infrastructure sector continues to be affected by a delay in project starts, which are expected to pick up in the last quarter of 2008.”
Still, the company’s bread-and-butter is the residential market, which has also come to near stand-still in Mexico.
Cemex’s 3Q guidance also forecast domestic cement and ready-mix sales volumes in Mexico to decrease by about 3% and 1% respectively, versus the comparable period last year — a bad hit but far from crippling.
Overall, 3Q sales are expected to be about $5.9 billion flat on a like-to-like basis, versus the same period last year. Revenue should be approximately $17.6 billion, a 2% increase in the same period.
To put that guidance into perspective, let’s look back to 2Q and 1Q of this year.
For 2Q, net sales increased 29% to $6.3 billion, versus $4.9 billion in the comparable period in 2007.
1Q looked particularly good. Net sales rose 26% to $5.4 billion over the comparable period in 2007.
Watch Cemex. As soon as the stock creeps back up, it may be a great contrarian buy.
Disclosure: Author holds a long position in CX