Dykstra: Print Profits With International Paper

The market jumped higher Monday in anticipation of the Fed rate decision tomorrow. Stock prices now reflect the belief that the Fed cut rates again. The Sept. 18 rate cut helped send stocks flying off their late-summer lows and eased concerns over a credit and liquidity crisis.

With the financial sector dealing with turmoil, and oil and tech stocks trading at or near all-time highs, I would like to focus on a different sector altogether in looking at International Paper(IP Quote) today. I last wrote about the company in early August, following a big drop in its second-quarter earnings.

International Paper has manufacturing operations in the U.S. and abroad. It operates in all aspects of the paper-making industry; taking forest trees to factory, producing the paper, and packaging and selling the finished product. While at heart the company is a paper company, much of its earnings come via land sales.

Last year alone, IP sold $6.6 billion worth of forest land. The company holds onto a large amount of real estate as a land investment in order to enhance profits.The stock took that large hit after warning that disappointing land sales will keep profits below estimates.

I often like buying stocks that are victimized by market overreactions. The negativity from International Paper's impending earnings report is already built into its share price, recently at $36.40. At this point, there is little room for IP to do anything but pleasantly surprise over the reduced estimates. Furthermore, management believes that profits will come in above the second-quarter number. With that in mind, I will place a limit order for 10 April 30 calls (IPDF) at $7.10 or better.

Game of Life

Commercial stores suddenly disappear in early September as enormous banners cover the windows to promote Halloween. On crowded city streets, four or five costume stores sit within a two-block radius. Costumes ranging from $10 to $150 fill the stores' inventories.

For most, these Halloween stores are perfect substitutes for each other, which means whichever store has the costume you like will be the store that gets your business. Prices may vary $2 or $3 among stores, but in general, they're similar. Consequently, due to the incredibly high demand, those who don't have the prowess or motivation to make their own costumes rely on the inflated prices of Halloween costume stores.