Cemex: In-Depth Idea Presentation

Danilo Santiago of Rational Investment Methodology presented his in-depth investment thesis on Cemex (NYSE: CX) at Best Ideas 2018.

Danilo estimates that the shares offer an internal rate of return of ~14%, i.e., investment value, in real terms, would double in about six years. Cemex earnings have been recovering for a few years. However, discussions about NAFTA appear to have pressured the market quotation. If negotiations do not lead to a disastrous deal for Mexico, the recent share price may provide a classic “entry point” opportunity. The real long-term threat to Cemex may be an adverse impact of “the great economic experiment”, with the Fed and other central banks still maintaining real interest rates at negative levels. Not surprisingly, housing prices in the U.S. have been forming an “echo bubble”, which might be preventing housing starts from normalizing. Another U.S. housing crisis would impact Cemex margins, although probably not to the extent observed in the 2009-2011 period. The company’s financials are on the mend. Ill-timed acquisitions from the mid-2000s still affect the balance sheet, but leverage ratios are lower than a few years ago. Cemex is in a much better position to weather another crisis (or pause) in the U.S. housing sector.

About the instructor:

Danilo Santiago is the founder of Rational Investment Methodology (RIM), that focuses on a quasi-static group of approximately 60 publicly traded, liquid US stocks – most of these companies, defined as RIM’s Circle of Competence, have been followed for more than a decade. RIM employs extensive industry research and analysis, building highly detailed proprietary discounted-dividend models, which are used to determine “fair values” of companies based on different scenarios. Lastly, RIM constructs “rules-based” model portfolios (long-short, long-only or long- aggressive) with a company-specific margin of safety relative to “fair value”, using its proprietary Odysseus Portfolio Construction Tool. Selected model portfolios are replicated into clients’ accounts, using Interactive Brokers’ platform, adjusting the number of shares in each client’s portfolio in a pari-passu manner. Mr. Santiago is a MBA from Columbia University and has a B.S. in Electrical Engineering from the University of São Paulo.

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