Shares in Mexico-based cement maker Cemex (NYSE:CX) have been heavily weighed down as concerns for the U.S. housing industry intensify. The company's shares are now down more than 27% from June's $41 high.
Built into this worry is the company's exposure to some of the hardest-hit markets in the country, like Florida, California, and Nevada. Add in states like Texas, and these regions comprise roughly 8% of the cement maker's revenue. That's why, when Cemex forecast a 6% drop in income at the beginning of the summer, the stock began its descent.
Coupled with its winning bid for Australian cement producer Rinker, it's easy to see why Wall Street has been fleeing the concrete king -- Rinker derives about 44% of its revenue from U.S. markets, primarily in Florida. Furthermore, there seems to be no end to the housing pain in sight. The house of cards built by Beazer Homes (NYSE:BZH) teeters on the edge of bankruptcy, while Countrywide Financial (NYSE:CFC) has become the Blanche DuBois of mortgage lenders, relying upon the kindness of strangers like Bank of America (NYSE:BAC) to stay afloat. Cemex's U.S. exposure has been like a pair of cement shoes to the stock price.
Yet all this sinking and settling is overdone. While the immediate effects of the housing slump are nibbling at Cemex's numbers, the company has positioned itself for an eventual recovery, even if it is in late 2008, as some analysts surmise.
As part of its bid to have the Rinker deal approved, the company will be shedding assets in Florida and Arizona. Irish cement maker CRH wants to buy as much as $4.5 billion of those assets. Cemex has also announced plans to build a $400 million cement and concrete products plant in Arizona, which will be operational by 2012. The company is laying the foundation for tomorrow's building boom, and investors ought to be getting interested in what it's got in the mix.
According to commercial real estate developer CB Richard Ellis (NYSE:CBG), the commercial building industry has not been affected like residential housing has, and Florida is still ripe for investment. In particular, West Palm Beach and Boca Raton are believed to be among the best-positioned cities to raise rents over the next five years thanks to demand. Add in China's seemingly insatiable appetite for concrete -- some 25% of the world's output -- and Cemex may very well enjoy continued higher prices for its products.
Combine the company's strength and smart positioning with a reasonable valuation that is roughly in line with fellow major cement player Lafarge (NYSE:LR), and you've got a cement block to serve as a cornerstone for your portfolio's returns.
For related Foolishness:
