This Is Why I’ll Never Be a Fan of Jim Cramer

Jim Cramer says it’s time to swap out of LINN Energy for Kinder Morgan.

Mar 13, 2014 at 10:03AM

Jim Cramer

Photo credit: Flickr/Allison 

I'm not one of Jim Cramer's most adoring fans. Sure, he has some good advice every once in a while. However, his advice can lack depth and is almost entirely driven by short-term thinking. I'm just not a short-term thinking kind of guy.

Head-scratcher
Take his latest call for investors to swap out of LINN Energy (NASDAQ:LINE) and LinnCo (NASDAQ:LNCO) for energy peer Kinder Morgan (NYSE:KMI) or Kinder Morgan Partners (NYSE:KMP). As far as I'm concerned such a move makes absolutely no sense whatsoever. LINN Energy isn't a trading vehicle. It's an income vehicle for the long term. I've owned LINN Energy since 2007 and LinnCo since 2012 for the income thrown off from owning mature oil and gas wells; that income has not only grown, but it has grown safer over time.

That's not to say that buying Kinder Morgan is a bad idea. I'm personally long Kinder Morgan for many of the reasons that Cramer recommending the stock. We agree that Kinder Morgan CEO Richard Kinder is a very "bankable" CEO. On top of that, the company has a great management team, which is very evident in a recent interview my Foolish college Taylor Muckerman had with President and COO Steve Kean.

However, I didn't swap out of LINN Energy or LinnCo just to invest in Kinder Morgan. Because I'm not overallocated to LINN Energy, or any other stock for that matter, and I have plenty of cash in my portfolio, I have the freedom to hold stocks for the long term and add new positions over time. I rarely, if ever, sell. The thesis would have to be completely broken for me to sell, and that's not the case at LINN Energy.

 Linn Energy Granite Wash V

Photo credit: LINN Energy LLC

Why I'm holding LINN Energy or LinnCo
LINN Energy isn't a get rich quick kind of company. Its business model is actually quite boring. It buys up old oil and gas wells that no one else wants, hedges the production from those wells against commodity volatility, and pays out virtually all of its income to investors. Aside from that, the company will either drill or acquire new wells to keep production flowing and growing. It's a proven business model that has worked for years and one I expect will continue working for years to come.

On top of the basic business model, LINN Energy does have some appealing upside. Its assets are worth $40 or more. The company also has interesting upside as it explores strategic alternatives for its Midland Basin acreage. That said, I don't expect LINN Energy's units or LinnCo's stock to explode higher once the company decides to do with that hidden asset. Instead, I expect the company to reinvest whatever proceeds it receives into more mature oil and gas wells. That should enable LINN to continue slowly growing its income stream to investors over time.

Investor takeaway
LINN Energy shouldn't be thought of as a trading vehicle for quick profits, nor should Kinder Morgan for that matter. Instead, these are income vehicles that offer higher income than bonds, with the added benefit of growing income and a small dose of equity upside. The idea here is to buy to hold and that's exactly what I plan on doing with LINN Energy, LinnCo, and Kinder Morgan.

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Matt DiLallo owns shares of Linn Co, LLC and Linn Energy, LLC. Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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