Young companies with wide-open growth potential are my favorite type of investment. In a perfect world, these companies would be able to generate enough of their own profits to expand, be it in the form of new stores, factories or an increased sales force to reach new clients.

In the real world, though, most markets are mature and require companies to buy out competitors in order to grow market share. But one risk in making large acquisitions is making one within a cyclical industry right before a downturn. The rub, of course, is that it isn’t always easy to predict when the next recession might hit. A case in point is the latest recession, which ended up being one of the most severe downturns in many decades and caught many companies unprepared.

#-ad_banner-#Monterrey, Mexico-based cement giant Cemex (NYSE: CX) made two large acquisitions just before the global housing market began to slow. It acquired RMC, one of the largest cement producers in Europe, for $4.3 billion in March 2005 and followed that by snapping-up Australia-based Rinker for $14.2 billion in July 2007. These large purchases saddled Cemex with a substantial debt load just as the housing market started a freefall from which it is only now beginning to recover. The plummet started in the United States but quickly spread to many parts of Europe and other parts of the world. But the long-term growth story in many global makets remains in tact, making Cemex a good bargain for value investors.

It was a rough couple of years for Cemex, but the company has survived and is now preparing for an eventual upturn in home building and global construction activity. As the largest provider of ready-mix concrete in the world, Cemex will most likely be one of the biggest beneficiaries of a pick-up in global demand.

The company’s largest markets are in the United States and Mexico, where it has 13 and 15 cement plants, respectively. It has another 11 in South America and 19 throughout Europe. It also has plants in Africa and Asia, including appealing markets such as Israel, the Philippines and Thailand.

In addition, Cemex’s home market and vast presence in South America hold great appeal, since this region has been showing steady demand for new housing and related infrastructure to help build the growing economies in Mexico, Colombia and Guatemala, to name a few.

The long-term outlook favors Cemex as a global leader, but the near-term also looks strong. Cement consumption growth rate, for instance, is expected to surpass last year’s 2.4% to about 4% this year. This would mark the first signs of significant growth since 2007, right before the housing bust. Analysts expect this to translate into nearly 8% annual sales growth at Cemex for total sales in excess of $15 billion in 2011.

To boost profits back to precrisis levels, Cemex has paid down its debt, is refinancing existing debt at lower interest rates and cutting costs. Debt has been pared from more than $22 billion in 2009 to a current $17 billion. Interest rates on some debt are more than 1.5% lower. In April, management announced plans to save $400 million each year by reducing middle management.   
 
Action to Take –> By next year, Cemex is likely to return to generating steady profit growth. Before the crisis hit, the company had posted two years of earnings right around $3 a share. This level of profitability may be three to five years away, but within the next two years, Cemex should be able to earn $1.50 per share.

With a current share price below $8, the stock can almost double to $15 as earnings return to positive territory. This price target assumes a very reasonable price-to-earnings (P/E) ratio of 10, which is right around Cemex’s historical average. In addition, Cemex paid a dividend yield close to 3% prior to the crisis. I am not expecting a dividend payout any time soon, but it could eventually return as profits rebound and the company starts seeing the benefits of its presence in some of the most appealing emerging markets in the world. Within five years, Cemex’s shares could more than double to about $20.

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