Technically, you should buy Linn Energy (Nasdaq: LINE) right now.

We examined the company using Moving Average Convergence-Divergence (MACD), one of the most popular and long-used technical analysis indicators. Technical analysis involves buying and selling stocks based not on the underlying merits of a company, but on the patterns and formulas surrounding its price movements.

Signal line crossover is one of the more common ways to interpret MACD. It uses a series of moving averages (in this case, nine, 12, and 26 days) to look for bullish and bearish crossovers that indicate a stock has momentum in one direction or another. Below, you'll find a current chart of Linn Energy's MACD profile:


Confused? Well, that's preposterous! How could you ever be confused by something as simplistic as a Moving Average Convergence-Divergence chart! OK, we're jesting -- but in all seriousness, this is actually one of the simpler methods for technical analysis.

Still, if you'd strictly followed the rules, seeking out upward and downward momentum, you would have seen the stock move between buy and sell categories a fantastic 12 times!

A better way to size up companies
Here at Fool.com, we're more interested in other measures of company value. When we look at Linn Energy and its peers, here are the areas that interest us:

Company

Linn Energy

Anadarko Petroleum (NYSE: APC)

Forest Oil (NYSE: FST)

Pioneer Natural Resources (NYSE: PXD)

Market Cap (billions):

$4.43

$27.37

$3.46

$6.91

Qtrly Rev Growth (yoy):

65.00%

78.80%

14.50%

24.90%

Revenue (TTM, billions):

$ 0.54

$9.59

$0.82

$1.84

Operating Margin (TTM):

28.07%

12.05%

35.51%

49.19%

P/E (TTM):

N/A

29.60

9.75

15.13

PEG (5-yr expected):

N/A

1.97

2.14

3.48

Source: Yahoo! Finance and Capital IQ, a division of Standard and Poor's; TTM = trailing 12 months.

We prefer to look at the fundamental drivers of value. Investors should closely watch statistical fields like return on equity, as well as qualitative values like competitive advantage and managerial effectiveness. These areas led investors like Warren Buffett and Seth Klarman to decades of outperformance. Buying and holding great companies is the best solution for individual investors to build lasting wealth and achieve their financial goals.

So when you look at Linn Energy, don't evaluate it for crossing a momentum line. Buy or sell it because:

  • Linn offers one of the highest dividend payouts in the oil and gas industry, yielding around 8.1% at today's prices.
  • Despite a buying binge in 2007 that included a $2 billion-plus acquisition of properties from Dominion Resources, Linn still maintains a balance sheet that's in better shape than its MLP peers. While critics feared that Linn wouldn't be able to maintain its acquisitive strategy when debt markets tightened up during the financial crisis, the company has been able to continue its buying spree unabated. Year to date, Linn has either closed on or announced more than $1 billion in acquisitions. Also, in its recent earnings report, Linn showed off a slimmed-down cost structure. Lease operating expenses were only $1.65 per Mcfe, which was drastically lower than the midpoint guidance of $1.92 per Mcfe that the company had previously projected .
  • Investors looking to Linn or its attractive yield may be scared off by its aforementioned aggressiveness in pursuing acquisitions, especially when market conditions still look shaky. However, the company's been selective in looking for more conservative purchases of assets that are either producing, or near production of, oil and natural gas. Linn's larger recent purchases included already-producing natural gas assets in Michigan, and Permian Basin assets that should see production of 2,800 barrels a day by midyear.

Technically insane
Want to buy Linn Energy based on technical merits today? Technically, the odds are that you should flip and sell Linn Energy sometime very soon. If that sounds like madness to you, well, we here at the Fool.com agree. In every market decline, technical analysis gets its share of proponents. The cries that "buy-and-hold is dead!" get louder, and individuals race toward schemes that promise greater wealth in a shorter amount of time.

I don't deny that technical analysis could make investors money. In any random short-term transaction, you're essentially playing a 50/50 game of chance. However, at the same time, most technical analysis schemes are a relatively simple science, eliminating the vast complexities of evaluating true company value. However attractive, this theory is ultimately the wrong path for individual investors. Technical analysis relies on long-held beliefs about exploiting momentum and consistent patterns throughout the market.

However, with as much as 75% of market trading now done by Ph.D-level programmers at massive high-frequency funds, even if opportunities existed, what chance would an individual have to sniff these deals out? With so much volume now driven by these funds, how can you be certain the same rules of patterns still even exist?

I could also point to Massey University's study across 49 countries, which showed that more than 5,000 trading rules add no value. However, the real reason to forget about technical investing is what we mentioned earlier: Linn Energy crossed the crossover 12 times in the past year! The amount of trading involved in most technical analysis schemes racks up commission fees and short-term capital gains taxes, eating away at profits. More importantly, it takes away from the idea of holding a portfolio of great companies that can accrue wealth over a long time horizon.

That's why, at Fool.com, we recommend that individual investors establish a portfolio of well-managed companies with strong advantages over their competitors. In the end, we find that to be the best contributor to long-term wealth. More importantly, it'll spare you from sitting bleary-eyed in front of a computer with a Big Gulp full of coffee, frantically buying in and out of companies. But hey, if your idea of protecting your future is charting the ups and downs of Moving Average Convergence-Divergence charts, then Linn Energy looks like a buy right now. Just don't expect to hold it for very long.

Jeremy Phillips owns shares of no companies listed above. Dominion Resources is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.