I added a little bit to my position in Cemex SA de CV (NYSE: CX) this afternoon, picking up a small portion at $67.30, which bring my average price per share up to about $61.38.
So why buy more?
For those who don't know the company, Cemex is one of the dominant cement producers in the world, and certainly has a huge presence in the United States and Europe, two areas where cement is in very heavy demand right now. I knew that when I opened my position in mid-February, and you can read that post to see a fuller writeup of my pro-CX argument.
But what has changed, aside from the fact that the stock has moved up about 15%?
Well, it was nice to pick it up on a down day, though at just a percent or two that didn't really alter my thinking.
No, what made me come back to Cemex today were two things:
One, the shortage of cement in the United States is getting worse, and in some areas it's becoming desperate. There was a nice article on the problems in the Pacific Northwest on CNBC's site that gives some color to that, but suppliers are rationing cement to their customers and builders are pressuring Congress to further open up the market to Mexican cement.
Now, Cemex makes plenty of cement in the US as well -- in fact, they've added more capacity here recently. But if they can sell their higher-margin Mexican-made cement here in the US as well, at higher prices, that can only help their bottom line. The recent easing of cross-border cement sale restrictions was a nice start, and it seems the Katrina rebuilding was a larger part of the political argument for opening the market, but the rest of the country is suffering too ... it might not be too long before prices really start climbing and imports are further loosened, both of which would be good news for Cemex.
That's the recent news about their operations that I found promising.
But there was also a little news item out recently that reflects on their management strategy and decision making, and I found that equally promising.
Cemex owns about 25% of the biggest cement company in Indonesia, PT Semen Gresik Tbk -- and according to a Reuters story, they're thinking about selling it.
Why does that make good management sense? After all, Indonesia is in a booming part of the world, with dramatic demand for cement expected.
In large part, it makes sense because Cemex is not going to be able to manage the company in the way they try to manage all of their operations -- with heavy technology use to increase efficiency, strong cost cutting, and otherwise fairly aggressive management. That's because the government still owns most of the company, and has apparently broken its promises to Cemex that it would be possible for them to have more control over operations and possibly acquire a controlling interest (I'm reading into this a bit, I don't know what exactly transpired in their original negotiations eight years ago).
Cement is just a commodity business -- sure, it's a scarce commodity right now, and one that can keep cash flowing in at remarkable speeds, but if business turns to a slower path the ability to effectively manage their operations will be the key to Cemex's continued ability to grow.
If they can't manage it the way they want to, it's smart to walk away. That's just another little signal for me that the management of this company is on the ball -- they won't cling to a decision they made a few years ago if it doesn't look like it's going to work for them in the long run, which tells me their egos are at least partially in check.
And as a bonus, the price they're asking is more than twice what they paid for it ... not a bad time to sell, assuming they can't pressure the government to give them more control.
CX 1-yr Chart
Aside: Did you know that Seeking Alpha now publishes a one-page recap of Jim Cramer's Mad Money TV show, Lightning Round, Radio program and Stop Trading?