We came across a bearish thesis on NewMarket Corporation on Valueinvestorsclub.com by Pop4Pres. In this article, we will summarize the bears’ thesis on NEU. NewMarket Corporation’s share was trading at $588.08 as of March 12th. NEU’s trailing P/E was 13.53 according to Yahoo Finance.
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NewMarket Corporation (NEU) is a specialty chemical company whose profits are almost entirely derived from petroleum additives, primarily used in motor oils and fuels to enhance performance and longevity. While the company has historically benefited from tight supply and post-pandemic disruptions, the industry is now facing a structural oversupply, with global capacity additions from players like Xinxiang Richful, Lubrizol, Oronite, and Infineum exceeding demand by an estimated 10%-18%.
Chinese exporters, in particular, have shifted from net importers to aggressive international competitors, further intensifying price pressure. Demand growth is modest, constrained by more efficient internal combustion engines, elongating drain cycles, and the rise of electric vehicles, which reduce lubricant needs. Despite NewMarket’s moves into adjacent niches and acquisitions such as AMPAC and Calca, these efforts are unlikely to offset the margin pressure from rising competition and overcapacity.
The company’s gross margins, historically cyclical and sensitive to crude oil prices, are expected to compress as contracts are renegotiated in a softer market environment. Private label competition and global pricing transparency further exacerbate margin erosion.
Valuation appears stretched relative to the current supply-demand imbalance, with potential downside of 23%-48% if ROICs normalize under heightened competition. Investors face risks from falling product prices, aggressive Chinese expansion, and limited pricing power, suggesting that NewMarket’s petroleum additives segment may struggle to sustain profitability in the medium term, making the stock vulnerable to further downside in a cyclical, increasingly contested market.
Previously, we covered a bullish thesis on Eastman Chemical Company (EMN) by Necessary-Damage5658 in November 2024, highlighting its advantage from export control changes and potential market share gains. EMN’s stock price has appreciated by approximately 5% since coverage. Pop4Pres shares a contrarian view, emphasizing NewMarket Corporation’s (NEU) structural oversupply, rising global competition, and margin pressure, with NEU’s stock having depreciated by 30.16%.
NewMarket Corporation is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held NEU at the end of the fourth quarter which was 21 in the previous quarter. While we acknowledge the potential of NEU as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
