Cemex SAB de CV (ADR) (CX): This Stock is in Danger of Plunging 50% — Sell Now

In effect, CX has shifted from being a deep bargain back in 2011 to being clearly overvalued these days. And that even assumes the economy — and Cemex’s numbers — will vastly improve.

Cemex’s $15 billion debt load may explain why short sellers are targeting the stock. More than 98 million shares were held short at the end of July, making this the ninth most-heavily shorted stock on the New York Stock Exchange.

Short sellers had a chance to digest Cemex’s second-quarter results on July 25, and came away unimpressed with management’s comments about better days ahead. These short sellers likely doubt the company is going to be able to deliver the much-improved financial results in 2014 and 2015 that Wall Street analysts are now penciling in.

In sum, CX is more than fully valued in a best-case scenario, and it is vastly overvalued if financial results remain weak. This stock could fall by more than 50% in coming quarters if management is forced to concede that 2014 will be yet another year of negative free cash flow. The fresh concerns around Cemex’s balance sheet would cause many investors to flee.

Recommended Trade Setup:

— Short CX at $8 or above

— Set stop-loss at $14

— Set initial price target at $6 for a potential 25% gain in six months

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