Linn Energy (LINE) -- This is the largest E&P MLP/LLC out there, with a market cap of about $2.2 Billion and an enterprise value of about $4.2 Billion, and represents one of the better long-term commodity price plays out there, IMO. They started with some boring Appalachian gas wells and then over the last year or so, went completely idiotic buying properties. About 58% of their reserves are gas with rest being oil and NGL's.
The debt may appear high but they still have an interest coverage ratio of around 4.5:1, not exactly investment grade but not in the danger zone either, especially considering their aggressive hedging strategy.
They have hedged nearly all of this year's gas production and most of their oil, so they would not directly benefit much from an increase in the near-term price of either commodity. But the value of their reserves will slowly appreciate, along with the increase in whatever the consensus "normalized" price for each commodity becomes over time.
This is not a "get rich quick" deal, you will have to be patient to make any serious coin with this. Maybe it will help, though, to know that while you are watching the stock price basically go nowhere, you are collecting a dividend at about a 12.5% rate, all of which is tax-deferred.
The reason the stock has such a high yield right now is due to the fact that, in order to finance their torrid growth, the company issued a massive number of shares in PP's over the last year or so. The last of those issuances, and the biggest, becomes free-trading next week.
The company expects to announce 4Q numbers and year-end reserves on 2/28, and I believe that announcement will bring in a lot of buying, so this mouth-watering yield may not be around for much longer.
See a recent update on them by Lehman at finance.groups.yahoo.com (you may need to join the group to access this page, it is fast & easy to do so). Lehman has them at Overweight with a $34 price target. Lehman has been one of their primary investment bankers.
The name of the game for commodity price plays, IMO, is controlling as many reserves as you can. Also, you want to take drilling risk out of the equation in order to have a pure commodity price play. This is why I believe Linn Energy is the best long-term commodity price play around. |
