Don’t forget the business model
Short sellers see this decline rate as being an insurmountable burden that will eventually lead to LINN’s demise. Given the perfect storm, that’s entirely possible, just as it is for any other company. Yet, LINN’s business model is designed to combat the decline – it is constantly purchasing additional assets to not only replace the decline but to grow its production and reserves. Earlier this year the company made its largest transaction ever as it announced a deal to buy Berry Petroleum Company (NYSE:BRY) .
The Berry Petroleum Company (NYSE:BRY) deal was so accretive to cash flow that it enabled LINN to announce a distribution boost. Once the deal closes, LINN’s expected distribution coverage ratio will be on safer ground at 1.07 times for the second half of the year. LINN’s ability to continue to acquire assets is showing no signs of slowing down – the company believes its activity will only increase. Further, its opportunities will continue to evolve as today’s hot play will become tomorrow’s mature asset that’s ripe for consolidation under LINN’s business model. Linn Energy LLC (NASDAQ:LINE) is very selective in which assets it acquires, a business model that leaves its future open to so many possibilities. Finally, rising natural gas prices are currently a weight that could be lightened if gas heads higher, a distinct possibility given the demand outlook. So, while I understand the concern, LINN has a long runway of upside opportunities ahead and I see no reason to worry.
Foolish bottom line
Short sellers are going to continue to attack LINN, if for no other reason than that it’s large yield has attracted heavy interest from retail investors. Savvy Wall Street investors know that it’s possible to worry these investors enough to entice them to part with their investments en masse. Don’t think that these attacks are about exposing some weakness in LINN’s business model to enlighten the average investor. Unfortunately, you’re best interests are not what’s being guarded here; instead, this is a pursuit of profits at your expense.
As an investor you need to trust LINN’s management team and believe that they have your best interests in mind, otherwise it’s time to move on. So far the team has done admirably in pursuing value-creating opportunities, which is even why LINN’s in the spotlight today. Personally, I’m going to continue holding on to LINN and allowing the team to continue to create value. In fact, I plan on adding to my position as soon as the move is practical.
The article The Bears Take Another Swipe at LINN Energy originally appeared on Fool.com.
Motley Fool contributor Matt DiLallo owns shares of LINN Energy, LLC and LinnCo LLC (NASDAQ:LNCO). The Motley Fool recommends BreitBurn Energy Partners L.P. (NASDAQ:BBEP)
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