Taipan Online: Hotline

“Back in the December 2005 Taipan issue, I advised you to pick up shares of Value Vision Media (VVTV:NASDAQ), based on the theory that the Christmas season would once again be kind to the company – as it has been for several years now.

“It didn’t disappoint. And with the “Christmas Cycle” now over and further gains a little more difficult to come by, it’s time to take your profits on this play and move on.

“My original recommendation was for you to buy shares under US$12 and to be prepared to cash out at the end of January. Our official entry price was US$11.29, so you should now be able to bag gains of around 14% as the stock closed today at US$12.86.

“Here’s why I’m positive our gains are at their maximum. A quick glance of a recent chart of VVTV shows that its 50-day and 200-day moving averages have crossed. Historically, this has been an accurate indicator that share price is at a peak. So don’t risk the current gains – cash out now and we’ll think about playing this one again next Christmas.”

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CEMEX GETS US$100 MILLION FROM UNCLE SAM

This just in from Erin Beale:

“After years of speculation, political lobbying and union petitioning, a deal has finally been reached. The United States has agreed to slash duties on Mexican cement imports – from US$26.28 per tonne to a mere US$3 per tonne. That’s an 89% drop. After three years, the duty will be eliminated completely.

“In case you haven't been following my coverage of this situation, the United States has levied an outrageous 80% duty on Mexican cement imports for the past 15 years. In the 1980’s, the US frequently imported cement from Mexico when China couldn’t ante up. Then, in 1990, the US government accused the Mexican cement industry of “dumping” cement in the States, thereby stealing business from domestic cement companies. The Mexicans were then punished with an 80% “anti-dumping” duty on cement imports to the US.

“Even before Hurricane Katrina ravaged the Gulf Coast, the US was in the midst of a cement shortage due to the booming housing market. At least 35 states had reported shortages. But the massive necessary rebuilding efforts in the Gulf Coast finally prompted action to lessen the duty.

“In addition to saving more than US$23 per tonne on its cement exports to the United States, there’s more good news for Mexican cement maker Cemex (CX:NYSE) – my recommendation from the December 2005 Taipan issue.

“Cemex is expecting a cash refund in back-duties totaling US$100 million, straight from Uncle Sam's pockets.

“According to a Cemex representative: “The settlement comes not only at a time when key litigation decisions are soon to be issued but also at a time when the United States is experiencing critical cement shortages.”

“In my original article, I advised you to buy the regular stock “under US$58” and two separate options plays – the April 2006 50 Calls (CXDJ.X) under US$10 and the April 2005 55 Calls (CXDK.X) under US$6.50.

“The official entry price on the stock was US$56 on December 1 and it’s been a strong performer, nailing new 52-week highs and attracting mainstream attention on its way to US$62.70. That’s a 12% gain so far.

“We got into April 50 Calls at US$10 and the April 55 Calls at US$6.40 and back on January 11 – before the lifting of tariff duties was announced – I sent an e-mail alert, advising you to cash out on half of each options position, as speculation swirled that an agreement would soon be reached. That resulted in gains of 45% on the April 50 Calls and 61% on the April 55 Calls.

“Continue to hold the second half, as they still have time left on them. In addition, I believe there’s plenty more upside in this fundamentally sound, undervalued (trading for less than nine times earnings), debt-free company that is growing at a 77% clip and with US$522.8 million in cash. There’s plenty of upside left here. According to Reuters, Cemex expects a 63% increase in fourth-quarter earnings to US$950 million after a major acquisition boosted sales. An US$80 price tag in the next few months is entirely likely.”

My thanks to Andy and Erin for their contributions this week. Enjoy your weekend and I’ll talk to you again soon.

Martin Denholm

Executive Editor, Taipan

MMM

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