insidemadmoney
11-16-2005, 05:36 AM
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Cemex (CX) is a buy according to today’s Mad Money episode. Should it be bought, however? I am less bullish on Cemex than Cramer.
Let’s begin with a history lesson. In 1990, cement lobbyists successfully lobbied the United States government to levy a government tariff on Mexican cement. The early 1990s was a time of negative sentiment against further opening of international trade due to the fact of the often misguided idea that lower-cost producers in low wage countries were bad for the economy. As a result, an anti-dumping tariff under WTO guidelines of $57 a ton has prevailed to today. The rise of cement shortages now challenges this tariff. The main reason: China.
China currently uses over 40% of the world’s cement causing the price of cement to continue to rise. Cramer’s rational for buying Cemex is that he believes the 55% tariff on Mexican cement will be removed. The President, due to his low approval ratings (they are now at an all time low), will pressure the Commerce Department to remove the tariff.
Does this mean upside for the stock? It might not. Pressure to remove the cement tariff has been steadily building for several months now. Cemex stock has steadily trended up perhaps on anticipation of this news. One must not forget that the market is a forward looking instrument, always incorporating any available news in a (usually) very efficient manner. These are the reasons that the upside on Cemex might be limited:
(1) Cemex has already trended up in the past few months as many investors have already anticipated the removal of the tariff.
(2) Cemex is only up 1.78% in afterhours, meaning that the potential good news may have already been built in the stock.
(2a) Cemex is a low float stock, so if any genuinely new news was released, it should spike up by perhaps 4-5%.
(3) Possible risks: A lowering of China’s demand will destroy the world cement prices. Also, there is a small possibility that the Commerce Department will not recind the tariff.
Finish reading the article at http://www.insidemadmoney.com
Cemex (CX) is a buy according to today’s Mad Money episode. Should it be bought, however? I am less bullish on Cemex than Cramer.
Let’s begin with a history lesson. In 1990, cement lobbyists successfully lobbied the United States government to levy a government tariff on Mexican cement. The early 1990s was a time of negative sentiment against further opening of international trade due to the fact of the often misguided idea that lower-cost producers in low wage countries were bad for the economy. As a result, an anti-dumping tariff under WTO guidelines of $57 a ton has prevailed to today. The rise of cement shortages now challenges this tariff. The main reason: China.
China currently uses over 40% of the world’s cement causing the price of cement to continue to rise. Cramer’s rational for buying Cemex is that he believes the 55% tariff on Mexican cement will be removed. The President, due to his low approval ratings (they are now at an all time low), will pressure the Commerce Department to remove the tariff.
Does this mean upside for the stock? It might not. Pressure to remove the cement tariff has been steadily building for several months now. Cemex stock has steadily trended up perhaps on anticipation of this news. One must not forget that the market is a forward looking instrument, always incorporating any available news in a (usually) very efficient manner. These are the reasons that the upside on Cemex might be limited:
(1) Cemex has already trended up in the past few months as many investors have already anticipated the removal of the tariff.
(2) Cemex is only up 1.78% in afterhours, meaning that the potential good news may have already been built in the stock.
(2a) Cemex is a low float stock, so if any genuinely new news was released, it should spike up by perhaps 4-5%.
(3) Possible risks: A lowering of China’s demand will destroy the world cement prices. Also, there is a small possibility that the Commerce Department will not recind the tariff.
Finish reading the article at http://www.insidemadmoney.com