Dykstra: Cash Money With International Paper

Today's pick was among those reporting earnings yesterday: Paper and packaging company International Paper (IP) reported that second-quarter profit more than doubled but failed to meet market expectations, due to increased raw material costs and lower volumes due to mill reconfigurations.

Mill shutdowns across the industry have reduced oversupply in IP's key market segments, resulting in improved product pricing strength. As such, the company expects third-quarter results to benefit from planned containerboard price increases. In addition, the company also intends to have a new "open market" share buyback plan in place shortly.

International Paper is a global paper and packaging company with manufacturing operations in more than 20 countries, including the U.S., Europe, Latin America and Asia, and it operates 18 pulp, paper and packaging mills; 94 converting and packaging plants; and five wood products facilities. With annual sales of about $22 billion, IP employs about 60,000 people worldwide, and it has a long-standing policy of using no wood from endangered forests.

IP makes the products that are essential for today, while sustaining millions of acres of forest for the needs of future generations; it is the nation's largest private landowner and seedling grower, planting more than 500 million seedlings a year.

Two weeks ago, the stock was trading at $41.57, but after last week's bloodbath and yesterday's disappointment with market expectations, we now find the stock at $35.97 -- clearly a bargain when net income was reported at $190 million compared to $83 million for the same quarter last year, a jump of 128.9%.

To implement my deep-in-the-money (DITM) calls strategy with this recommendation, I will buy 10 contracts of the January $30 (IPAF) at $6.40 or better.