You can make a lot of money by following the advice of a billionaire. That's why I think you should follow what Leon Cooperman, the billionaire and founder of hedge fund Omega Advisors, has to say about two energy stocks. I've been following both companies for quite some time, and I agree: Both LINN Energy (NASDAQOTH: LINEQ ) and SandRidge Energy (UNKNOWN: SD.DL ) have the potential to make investors a lot of money.
Cooperman has been fairly vocal in his support of LINN Energy as it has battled negativity this year. Recently he wrote a strong letter to the editor of Barron's refuting several negative stories it had published this year. He even goes so far as to say that the reporter responsible for the stories is "in the vise of a small group of unprincipled short sellers." He ends his letter defending LINN by saying that his firm is "convinced of the professionalism of the company's management." Further, "we are optimistic about the company's future growth and financial performance; and we believe strongly that the distortions of the three Barron's articles will not, in the end, carry the day."
I'm convinced that he's right to be bullish on LINN. I've been an investor in the company practically since it went public in 2006. The recent negativity on the company will eventually blow over, as it always does after these "bear raids" end. The biggest form of uncertainty is that these negative attacks have pulled in the SEC to investigate. That's putting the complex merger involving LINN, its affiliate LinnCo (UNKNOWN: LNCO.DL ) and Berry Petroleum (UNKNOWN: BRY.DL2 ) on shaky ground.
If the merger falls through, LINN could struggle to grow, because the company's main source of growth is acquisitions. One of the purposes of taking LinnCo public was to help it in its quest to acquire additional energy reserves, particularity companies such as Berry. That being said, if the SEC finds nothing wrong with LINN's accounting, and the merger with Berry goes through, LINN's units could skyrocket. According to Cooperman, and a number of Wall Street firms including Stifel, the company is worth about $40 per share, which would make it worth substantially more than where it's currently trading.
The second energy stock Cooperman is bullish on is SandRidge Energy. At a recent conference, the billionaire called out the oil and gas producer as one of his top 10 stock ideas. He thinks the company could be a "potential double" and that it has the best risk reward of the 10 stocks he named.
Here again, Cooperman is noting the real tangible value some investors are missing. In this case, it's the company's Mississippian Lime position, which is a high-growth oil asset. This year alone, SandRidge expects to grow its oil production from the play by 64%. That's really important, because 80% of the Mississippian's cash flow comes from oil.
The company has come a long way over the past year in cleaning up its act. It sold assets to repair its balance sheet so that it now has enough capital to develop the Mississippian through 2015. In addition, the company recently fired embattled founder and CEO Tom Ward after a long proxy battle with shareholders. With this uncertainty lifted, investors can focus more on the company's operations. Led by the tremendous potential of the Mississippian, the company has a very compelling future, which is why I agree with Cooperman's belief that the stock has the potential to double from here.
Final Foolish thoughts
Maybe I'm suffering from a bout of confirmation bias, but I agree with Cooperman on both picks. LINN is a great income growth stock, while SandRidge is a turnaround stock that's just getting ready for that turn. That's why I think investors should listen to what Cooperman is saying and dig a little deeper into both stocks.
Another stock worth drilling deeper into is the stock that The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.