Cemex SAB de CV (ADR) (CX): This Stock Is Up 60% — Time To Sell?

Cemex’s $15 billion debt load may explain why short sellers are targeting this stock. Close to 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 22, 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, this stock 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 half 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.

Action to Take –>

–Short CX at prices down to $8

— Set stop-loss at $14

— Set initial price target at $6 for a potential 50% gain in six months.

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– David Sterman

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