Cemex Stock : CEMEX, S.A.B. de C.V. : What is the future of this Mexican Building Supplies Juggernaut?

What is the future of this Mexican Building Supplies Juggernaut?

Cemex Stock : CEMEX, S.A.B. de C.V. Cemex has always been a high beta Emerging Markets play and a bit of a Mexican Peso to the US Dollar proxy. Moreover, Cemex has debt with a demonination in the US Dollar (USD). In addition, the company reports in USD, so a strong USD is bad for them.

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But for many investors betting on a strong global economy and a weak US Dollar, Cemex makes great sense.

The main thesis for buying Cemex stock is Mexican infrastructure growth. In addition, (president AMLO focused on it) + US infrastructure (in SE and SW) + asset sales + “value over volume” strategy (meaning no price wars) leads to EBITDA growth and brings leverage down (I think around 4x net debt/EBITDA now, but used to be above 6x). Get it below 2x and shift value from bonds to equity.

Once leverage is there, they could get an investment grade rating. Moreover, which would let them refinance all their debt at lower rates, bring net interest expenses down, and drive up earnings.

The story sounds good, but it’s been the same one since 2016, and I have not seen it happen. Furthermore, the stock has been a laggard this year, while most of emerging markets have done well. In addition, relations between Mexico and the United States could sour. But, unlikely with the current US and Mexican elected leaders. As a result of both of the Mexican and US Presidents being on the political Left.

In conclusion, at 2x annual gross profit, an investor might have a large enough margin of safety. Lastly, but more often than not it’s used simply as a macro investment.

Cemex Stock : CEMEX, S.A.B. de C.V. : What is the future of this Mexican Building Supplies Juggernaut?

Emerging Markets Forecast with Mirae Global Senior Portfolio Manager Malcolm Dorson