Weighing NewMarket's Profile Risks

Editor's note: This column was submitted by Stockpickr member Winston Kotzan.

Chemicals company NewMarket(NEU Quote) delves in a mix of businesses, but is the combination a lucrative play for speculative investors or just too volatile a mix?

Virginia-based NewMarket operates two subsidiaries, Afton Chemical and Ethyl Corp. Its Ethyl business primarily produces and sells tetraethyl lead (TEL), a gasoline additive that reduces engine "knock." Tetraethyl lead is known to be a deadly chemical that is hazardous to the environment and has been gradually outlawed in the U.S. through legislation beginning in the 1970s.

Most of Ethyl's sales are in countries other than the U.S. where the use of tetraethyl lead is still legal. Management and industry analysts widely accept that this business is in decline and that revenue from this source is expected to shrink.

For that reason, the bread and butter of NewMarket's business is Afton Chemical. Afton produces various lubricants and gasoline additives. The lubricants it develops are for engines and other complex machinery with moving parts. Additives improve energy performance and help keep dirt particles from engines.

Chemical Catalysts

NewMarket's business of additives and lubrication seems well-positioned to benefit from the global economy as more people around the world will be driving cars. Just over half of its business originates from outside North America.

The gasoline-additives business is in constant flux as chemicals are replaced with less environmentally hazardous substitutes. With the revival of ethanol, gasoline producers are now looking to ethanol as a safer means to boost octane. It seems that Afton Chemical is jumping on this ethanol trend with the introduction of a new product named BioTEC.