Viking Global Increases Its Wager on Cemex

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Andreas Halvorsen's Viking Global now owns 5.3% of cement giant Cemex (NYSE: CX). Viking Global is now the largest shareholder in Cemex, ahead of Mason Hawkins' Southeastern Asset Management, which has a 4.7% stake in the company. Viking Global has increased its stake in Cemex by 13 million shares in the last two months. At the end of the first quarter, the hedge fund owned 44.4 million shares and it now owns more than 57.3 million shares. Obviously, Halvorsen sees something that he likes by increasing his stake.

Who is Andreas Halvorsen?

Andreas Halvorsen is one of Julian Robertson's Tiger cubs. He launched Viking Global in 1999 and returned 89% after fees in his first full year of operation. Julian Robertson has said of Halvorsen:

Well, I mean, he may be one of the smartest people I've ever met, that's number one. Number two, he's one of the most aggressive [people] I've ever met.

What is Cemex?

Cemex is involved in the production and sale of cement, ready-mix concrete, aggregates, and other construction materials. The company has a global footprint with production facilities in Mexico, the United States, Spain, Egypt, Germany, Colombia, the Philippines, the Dominican Republic, the United Kingdom, Croatia, Panama, Latvia, Puerto Rico, Thailand, Costa Rica and Nicaragua. Cemex sells its construction materials in more than 50 countries.

Over the past year, the stock is up 108% as the global economy has recovered. Cement is the foundation for the construction industry and the company got hurt during the Great Recession. The stock went from trading just above $35 to less than $3. The stock has now firmed up and is trading just above $10.

The problem with Cemex is its crushing debt load. The company is weighed down by total debt of $15.9 billion as a result of its own poor timing. Just before the financial crisis, Cemex made two very large acquisitions. In 2005 Cemex acquired RMC Group for $5.8 billion and two years later acquired Rinker Group for $14.2 billion.

To combat its debt situation, Cemex is taking advantage of better credit markets to refinance its debt. The company is now able to refinance debt that it once paid 9.5% and instead pay approximately 5.9%. The interest expense savings could be enormous as the company continues to refinance more debt. The goal for the company is to bring down its debt costs and achieve an investment-grade rating.

Who are some other players in the cement business?

Vulcan Materials (NYSE: VMC) is the largest producer of construction aggregates (crushed stone, sand and gravel) in the United States. The company also produces asphalt, ready-mix concrete and cement. The company has a much more manageable debt load than Cemex with $2.7 billion in debt.

Vulcan Materials has a great position in the fast-growing housing markets of California, Arizona and Florida. The company has been a beneficiary of rising prices for aggregates and that has offset some weather-related slowdowns in the first quarter. Bad weather can have an adverse impact on the construction industry and delay projects.

What I like most about Vulcan is its geographic position. In many cases, it owns the only local quarry. Costs are too great to transport from the next closest quarry and the result is Vulcan ends up with a monopoly status. As construction continues to pick up, I see Vulcan being a prime beneficiary of that trend.

Martin Marietta Materials (NYSE: MLM) also produces and sells aggregates for the construction industry. The company has operations in the United States, Canada, the Bahamas, and the Caribbean islands. The total debt load is only $1.1 billion. Martin Marietta actually pays an annual dividend of $1.60 per share for a yield of 1.5%. The dividend payout ratio is 79%.

Martin Marietta sees improved pricing for the rest of the year helping boost the company's top and bottom lines. Shipments for aggregates are generally seasonally strong in the second half of the year. As long as construction spending continues to pick up, that's bullish for the aggregate producers.

At the end of the first quarter, a total of 25 hedge funds were bullish on Martin Marietta Materials and had the stock in their portfolios. Among the holders are Mason Hawkins' Southeastern Asset Management with 2.1 million shares and John Scully's SPO Advisory with 1.8 million shares.

Eagle Materials (NYSE: EXP) is not only involved in aggregates and cement, but also gypsum wallboard and recycled paperboard. Eagle Materials has been the best performer among the group with a rise of almost 115% in the past year. It is a well-run company with revenue of $642.6 million and net income of $57.7 million last year. The company's current market cap is $3.5 billion and the total debt load is $489.3 million.

Gypsum wallboard is a great business for Eagle Materials. Gypsum wallboard is the primary ingredient in drywall and demand is driven by new home construction. In the first quarter of this year, prices increased 23% from the fourth quarter on robust demand.

The company has five plants to manufacture gypsum wallboard. One of its plants in New Mexico was idled in 2009 due to the housing crisis. As demand for new homes picks up in the American Southwest, look for that plant to come back online and boost sales for Eagle Materials.

What is the Foolish assessment?

I think Andreas Halvorsen's move into Cemex is a good one. Obviously he sees the global recovery continuing and that will benefit the stocks in this industry. As housing and construction spending pick up, look for the entire sector to strengthen with it.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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