Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
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What: Shares of Linn Energy and its holding company LinnCo both shot up more than 15% at the time of this writing because, well...oil prices. With the price of a barrel of West Texas Intermediate crude up more than 7% to $53.25 a barrel, what do you think was going to happen to shares of Linn?
So What: The term "all ships rise with the tide" really comes to mind here, but the situation at Linn is very cut and dry. It has a hedged oil portfolio and an unhedged oil portfolio, and for it to meet its cash flow obligations to pay interest payments and distributions to shareholders, it needs the price of a barrel of oil to be in the $60 range.
Source: Linn Energy Investor Presentation.
With oil prices rocketing this high into what may be considered a tolerable range for its distribution coverage, shareholders are much more willing to take a chance on this one than when oil was trading at $45 a barrel just a week ago.
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Now What: It's really hard to believe that the price of oil can jump this much in a matter of weeks based on the fundamentals of supply and demand. Instead, this is more likely to be one of those daily aberrations that happen from time to time. Today's change shouldn't really change the investment thesis for Linn or oil prices in general because we still have a 2 million barrel per day supply glut and it will take a while for demand to catch up. So don't do anything rash like buy today thinking the oil price plunge is over or sell trying to lock in gains. After all, the point of owning Linn Energy and LinnCo is to get that montly distribution check.
The article Why Linn Energy LLC's Stock Skyrocketed 15% Today originally appeared on Fool.com.
Tyler Crowe owns shares of Linn Energy, LLC.You can follow him at Fool.com under the handle TMFDirtyBird, onGoogle+,or on Twitter@TylerCroweFool. The Motley Fool has no position in any of the stocks mentioned. 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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