The Lesson of Linn Energy LLC (LINE)

McCullough has tweeted numerous personal attacks against Jim Cramer of CNBC and TheStreet, (Full disclosure. I write for TheStreet) even to the point of tying the fight of Cramer’s own company to that of Linn management. Cramer, for his part, told his own viewers on Mad Money Tuesday that he now had questions about Linn’s management and that may in fact have triggered Wednesday’s rout.

The Right Path Forward

There are two types of investors to address here, those who are heavily into Linn and those who are not.

Those who are into Linn Energy LLC (NASDAQ:LINE) are, unless they’re short, out a lot of money right now. Short interest recently hit a peak, over 11 million shares, with 235 million outstanding, but that is only about 10% over the level achieved when Kaiser first made his short call.

Even Kaiser now says the amount of downside risk remaining in Linn Energy LLC (NASDAQ:LINE) is much lower than it was, perhaps another $5/share, and with prices paid on natural gas and oil now firming, it’s unclear how much further the move can go. At $22.81/share, the price it held mid-day on Wednesday, Linn was priced at a yield of over 12%, which should provide a floor under the share price.

Every move down like this gets a snapback, as shorts seek to cover, and the time to be long Linn may be at hand. Just remember that this is a trade, not an investment, that it does carry risk, and that you’ll need to be ready to get out quickly should there be more substantiation of Hedgeye’s charges.

An even better play might be Berry, which is not being investigated at this time, and which has fallen just 10% in the wake of the Linn disclosures. It’s now close to the levels it was holding before Linn moved for it, and could easily use the present volatility as a way to get out of its current deal and find a better one.

All the above is speculative, of course. The best place to be in all of this was outside of it. But if you’ve lost a lot of money already, you need to either lick your wounds or think of a way back toward breakeven.

Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article The Lesson of Linn originally appeared on Fool.com is written by Dana Blankenhorn.

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