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I'm Going Shopping at NewMarket -- at a Discount

Here's how I'm adding to NewMarket Corp. at a 7-year low.
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I wrote about NewMarket (NEU) just a few weeks ago at $341.75. As of Thursday, it has traded as low as $311.94.

I thought NEU looked great at more than $29 higher. There has been no recent news on the company. In my world that makes it a much better buy now. I never get scared by lower price action in the absence of news. I simply take it as a chance to average down.

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NEU is fiscally strong, pays a well-covered 2.41% yield and is expected to post all-time record EPS in 2021. As of 10:46 a.m. on Thursday, the new multi-year low was triggered on miniscule volume of just 8,619 shares.

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A typical price-to-earnings for NewMarket runs about 18.8-times, accompanied by around 1.46% in current yield. The stock's 2.41% yield is now the best yet. It hasn't sported such a low multiple since February of 2013. In fact, NEU, now offered for just 12.3-times this year's estimate, is valued cheaper than it was at its COVID-panic low.

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Traders who bought NEU in June of 2012, at 13.5-times that year's final profits, ended up doing very well. Both June 17, 2012 and June 17, 2021 represented historically cheap entry points for new commitments.

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From June 17, 2012 through Feb. 20, 2015, NEU proceeded to gain greater than 137% plus dividends. The current discount to NewMarket's average P/E is larger now than it was back then.

P/E expansion along with EPS growth is a potent force for stock market gains.

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When June quarter results are reported, it is expected that 2021 will be more than triple last year's Q2 as it laps the shutdown-related $2.08 number from 2020.

That might be all that is needed to get the stock moving upwards again.

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Buying shares outright appears to be the best way to play NEU. Don't let the high absolute share price fool you into thinking "you can't afford" to buy this stock. Think dollars not 100-shares.

If you normally put $5,000 into a new position just buy 16-shares. Any percentage gain will be the same as if you'd purchased 1,000 shares of a $5 stock.

Option traders with large free buying power in margin accounts might wish to sell some NEU Dec. 17, 2021 puts at $320 - $340 strike prices. That's a backdoor way of getting from $25.70 to $38.10 of upside on the shares over the next six months without actually owning them.

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Worst-case, forced purchase prices would drop to between $292.50 and $301.90 based on a $313.88 trade inception price. NEU hasn't changed hands as low as any of those levels since 2013.

Every put contract on shares trading in this price range represents about $30,000 if exercised. Be careful with your trade quantities. Also, use limit-orders only, as these NEU options trade pretty thinly.

At the time of publication, Price was long NEU shares, short NEU puts.