(Editor's note: The following excerpt comes from today's Hedgeye Morning Newsletter. If you would like more information on how you can sign up to receive these newsletters, please click here.)
“If someone picks on your brother and you don’t stand up for him, don’t bother coming home.”
-Larry Bird, quoting his father (paraphrased)
From a stock research perspective, the last couple of months at Hedgeye have been interesting. Specifically, our Senior Energy Analyst Kevin Kaiser has been knees deep in a classic battleground stock: LINN Energy. Kaiser has done an immense amount of independent work on the stock and concluded that the Company is overvalued. In fact, our fair value estimates are more than 40% lower than the current stock price.
This research has raised the ire of the Company’s management who has publicly refuted our thesis, has led to numerous ad hominem attacks from the likes of Jim “The Entertainer” Cramer, and also led to a letter to the editor of Barron’s from a large hedge funds that has accused the short sellers of LINN to be “unprincipled”. (Ironic from a hedge fund that routinely shorts securities.)
Now, admittedly, when we think we are on to something we tend to go all in. In this instance, that included presenting on the idea a couple of times, participating in the Barron’s article, and publicly defending our research and our analyst. To Larry Bird’s quote above, if you are not going to defend your ideas and your teammates, don’t bother coming back to Hedgeye headquarters.
Late last night, we were rewarded for our hard work as LINN Energy announced:
“… that they have been notified by the staff of the Securities and Exchange Commission ("SEC") that its Fort Worth Regional Office has commenced a private, non-public inquiry regarding LINN and LinnCo. The SEC has requested the preservation of documents and communications that are potentially relevant to, among other things, LinnCo's proposed merger with Berry Petroleum Company, and LINN and LinnCo's use of non-GAAP financial measures and hedging strategy.”
Now to be fair, this is America, and certainly the Company is innocent until “proven guilty” by the SEC, but nonetheless this was part of our point in warning investors that some of LINN’s practices were likely to attract the scrutiny of the SEC.
As always, though, Mr. Market will ultimately let us know if we are correct in our research on this name. After all, in the short run the stock market is a voting machine and in the long run it’s a weighing machine.
Back to the global macro grind . . .