Hook, LINE, or Sinker?
07/18/2013 6:00 am EST
Concerns over an SEC investigation have hit the shares of this energy LLC; speculators should side with insiders who are buying, says Mark Skousen in his High Income Alert.
A trading phenomenon I’ve witnessed over the years appears to be playing itself out in the markets once again. An announcement is made that the Securities and Exchange Commission (SEC) is investigating a company’s financials.
The stock plunges on the news. Later on, the SEC rules that nothing is seriously amiss. The stock soars again. You may have seen this happen with Green Mountain Coffee Roasters last year.
The stock plummeted on news of an SEC investigation then subsequently rose more than 300%. I believe something similar is happening with Linn Energy (LINE).
Based in Houston, Linn is an independent oil and gas company with properties in the Mid-Continent, the Hugoton Basin, the Green River Basin, the Permian Basin, and the Williston/Power River Basin.
It has more than 4.8-billion cubic feet equivalent oil and natural gas and operates more than 15,800 wells.
Thanks to the company’s high-quality management, Linn has grown from its founding in 2003 to become one of the nation’s top 15 independent producers.
The company began trading publicly in 2006 and has paid a dividend to shareholders every quarter. The current yield is an enticing 13.1%.
Revenue hit $1.77 billion during the last 12 months with sales soaring 36% in the most recent quarter. Insiders own 16% of the outstanding shares—and several of them have been piling into the stock lately.
SEC filings show that officers and directors Terrence Jacobs, Arden Walker, Jr., and Mark Ellis all have made recent six-figure purchases.
But the stock plunged last week when the company voluntarily disclosed an SEC investigation into accounting irregularities. Do you really believe the insiders own and are adding to a fraudulent $6.1-billion enterprise? I don’t.
That’s why I suggest you ride the coattails of these insiders. Buy Linn Energy at market. And place a protective stop at $21.
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