Linn Energy: In LINE for Gains

07/21/2014 8:00 am EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

We are taking full advantage of the incredible oil and gas bonanza in the United States; not only has the US become the world’s largest producer of oil and gas, but reserves have increased 50% in the past couple of years due to the new fracking technology, says Mark Skousen, editor of Fast Money Alert.

Let’s stay in the energy patch for our latest recommendation. Linn Energy (LINE), the rapidly expanding oil and gas company based in Houston, Texas, has traditionally made money 85% of the time in July.

Linn has properties in the Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin (Texas), Michigan, Illinois, and East Texas. With proved reserves of 6,403 billion cubic feet equivalent, it operates nearly 20,000 productive wells.

Linn has been on a buying binge, having purchased Berry Petroleum recently. It just announced a deal with ExxonMobil to trade its Midland Basin assets (which have a steep cost to drill) for assets already producing.

This will increase production while lowering costs, raising cash flow, and securing its high dividend.

And today, it announced a $2.3 billion purchase of oil and gas properties in the Rockies, the Mid-Continent, and the Gulf Coast from Devon Energy Corp.

Production is expanding, the firm is becoming more efficient, and its double-digit percentage yield is safe.

As Motley Fool puts it, “Linn Energy should return market-trouncing long-term total returns while creating high, dependable income.” That income amounts to 24.2 cents per month. Not bad!

Let’s buy Linn Energy at market and set a protective stop of $27 a share here. For those wildcatters among you, consider buying the October $34 calls, which last traded for 40 cents.

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