International Paper (IP) Is Today's Roof Leaker Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified International Paper ( IP) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified International Paper as such a stock due to the following factors:

  • IP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $152.2 million.
  • IP has traded 1.5 million shares today.
  • IP is trading at 3.95 times the normal volume for the stock at this time of day.
  • IP crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on IP:

International Paper Company operates as a paper and packaging company in North America, Europe, Latin America, Russia, Asia, Africa, and the Middle East. The company operates through three segments: Industrial Packaging, Printing Papers, and Consumer Packaging. The stock currently has a dividend yield of 3%. IP has a PE ratio of 23.8. Currently there are 7 analysts that rate International Paper a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for International Paper has been 2.7 million shares per day over the past 30 days. International has a market cap of $22.8 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.16 and a short float of 2.7% with 3.61 days to cover. Shares are up 0.8% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates International Paper as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, notable return on equity, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Paper & Forest Products industry and the overall market, INTL PAPER CO's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $638.00 million or 35.45% when compared to the same quarter last year. Despite an increase in cash flow, INTL PAPER CO's average is still marginally south of the industry average growth rate of 38.07%.
  • INTL PAPER CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, INTL PAPER CO reported lower earnings of $1.32 versus $3.81 in the prior year. This year, the market expects an improvement in earnings ($3.92 versus $1.32).
  • IP, with its decline in revenue, slightly underperformed the industry average of 15.0%. Since the same quarter one year prior, revenues fell by 21.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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