Why LINN Energy and LinnCo Shares Crumbled

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.DL  ) . 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.

Craving more input? Start by adding LINN Energy and LinnCo to your free and personalized Watchlist so you can keep up on the latest news with each company.

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Read/Post Comments (4) | Recommend This Article (6)

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  • Report this Comment On July 02, 2013, at 3:28 PM, toomuchgas wrote:

    On the other hand this is the kind of situation that Peter Lynch used to point to as an opportunity to acquire stock at a discount.

  • Report this Comment On July 02, 2013, at 3:58 PM, 1elk wrote:

    Put on watch list for now,be ready to jump when smoke clears.

    I agree with toomuchgas, and Mr. Buffet be greedy when other are fearful.

  • Report this Comment On July 02, 2013, at 4:06 PM, KMhit123 wrote:

    So this obviously affected Breitburn Energy, which was a recommendation by someone on this site. I researched the company after learning of the recommendation and own around 90 shares, which are down over 11% today.

    Can anyone chime in on this? Its my understanding that Breitburn's accounting practices may be similar to Linn.

  • Report this Comment On July 02, 2013, at 4:06 PM, jad9000 wrote:

    Noe the SEC is complicit in this bear raid by Hedgeye, Barons and their short selling cronies. They should be raiding Hedgeye's offices instead on Linn.

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