There is a good reason why “smart money” investors such as pension plans and mutual funds hold 85% of International Paper’s stock. The company is a cash flow machine that pays a big dividend and has plenty of money left over to weather the occasional economic turndown.

IP is one of only nine stocks in the S&P 500 Index that currently earns a perfect score of 10 from my IDEAL Stock Rating System due to its high dividend yield (4.4%), rapidly improving cash flow (operating cash flow doubled during the past twelve months), and low valuation (8.2 times forward earnings and less than 1 times sales).

From a technical perspective, IP’s RSI (relative strength index) recently rose above 50 after its share price crossed above its 50DMA (fifty day moving average). It has stabilized at $45 and appears on the verge of driving upward towards $50. What is going to make that happen? Two things:

• I believe the stock market rotation that got going in earnest last month will continue into the first half of 2019. With interest rates on the rise, bonds can only decline in value so income investors will transition into high yielding stocks with low payout ratios and IP fits that bill perfectly (its payout ratio was only 25% as of the most recent quarter).
• As the stock market rotates from high-multiple growth stocks to low-multiple value plays, the discrepancy between those multiples will narrow. I expect the forward PER for IP to increase from 8.2 to above 9 over the next five months. Combined with a modest increase in EPS, that should drive its share price well above $50.

In short, I am not expecting anything unusual (good or bad) to occur with International Paper, but I am expecting the stock market to assign a higher valuation to IP in response to a very different set of economic and political factors in 2019.

Since it may take a little while for the stock market to figure all that out, this option does not expire until April. By then, IP (and the rest of the stock market) will have reported two more quarters worth of results. If we get the rise I am expecting sooner than that then I may close this trade out early to lock in the gain.

Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.

How to Make the Trade:

• Trade: Sell to open the April 18, 2019, $45 put option on International Paper (NYSE: IP).
• Symbol: IP190418P00045000
• Limit Order Price: a credit of $2.50 or more.

Tell your broker: “I want to sell a put on International Paper stock. Specifically, I want to ‘sell to open’ one $45 Put that expires on April 18 for a credit of $2.50 per share or more.”

Note: Sell one put for every 100 shares of International Paper stock you would be pleased to buy at $45 per share. Investors should set aside $4,500 per contract sold to buy the stock in case the option expires in the money.

Further Instructions Regarding the Trade:

• • If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least equal to the Limit Order Price specified above.
  • Place your limit order on a “good ’til canceled” (GTC) basis and be patient.