Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of energy master limited partnership LINN Energy (NASDAQ: LINE ) and its recently spun-off LinnCo (NASDAQ: LNCO ) , which owns interests in LINN Energy's oil and gas assets, fell as much as 19% and 17%, respectively, after announcing that the companies were being investigated by the Securities and Exchange Commission.
So what: According to the release, the SEC has begun a private party investigation of the two companies and requested that LINN and LinnCo save all pertinent documents relating to its financial accounting and hedging strategies, as well as those regarding LINN Energy's pending acquisition of Berry Petroleum (UNKNOWN: BRY.DL2 ) . Although LINN Energy is cooperating with the investigation and plans to move forward with the Berry Petroleum deal, that didn't save the companies from a slew of analyst downgrades. Raymond James lowered its rating on LINN Energy to outperform from strong buy and dropped its price target to $40 from $44 on the news. JPMorgan was even less forgiving, knocking both companies down to neutral from overweight and bringing price targets on both down to $35.
Now what: There are a lot of concerning variables here. Last month, Barron's reported that while LINN Energy's accounting procedures were perfectly legal, they can be quite misleading. Now, with a private SEC probe going on and the Berry Petroleum deal very much up in the air – especially if the SEC investigation becomes formal or if Berry shareholders simply vote against the acquisition – I feel investors have no choice but to stick to the sidelines. LINN Energy and LinnCo may come out completely unscathed, but I suggest never dabbling with company's under investigation by the SEC.
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