Shares are known as units for MLPs; this offering is equivalent to a secondary share offering for a normal corporation. As is typically the case, the announcement of a new share offering is a short-term negative for a stock because it means a larger supply of stock. In essence, secondary offerings dilute existing holders’ stake in a business. This is why Linn stock fell in value late last week.

But I see this dip as an outstanding opportunity to buy Linn. Even if we assume the entire over-allotment option is exercised, the offering represents only an additional 6.325 million units. When you consider that Linn currently has 115 million shares outstanding, this is only a 5.5 percent dilution to existing unitholders. That’s not excessive.

Moreover, Linn will use the money it generates from this secondary offering primarily to pay down debts. Long term, I actually see this as a positive for Linn. While credit markets have normalized a great deal since late 2008, they’re still far from easy, so it makes sense to pay down revolving credit lines when possible.

In particular, this will allow Linn to eliminate or greatly reduce any debts due over the next few years; the partnership won’t have to try and roll over credit lines in a weak market for credit.

The timing also makes sense. As I’ve noted, Linn’s unit price didn’t reflect the fundamentals of the business late last year; institutional investors panic-sold the stock to raise cash, and the environment for energy shares wasn’t particularly healthy. That situation has since improved, and Linn has rallied off its lows. The fact that Linn could successfully execute a secondary offering is testament to the fact that market conditions have improved markedly.

With a yield topping 15 percent, Linn Energy is a buy under 25.

I recommended covered calls on Hess (NYSE: HES) in the December 24, 2008 TES, Buy Income, Super Oils and Gas. Specifically, I recommended buying Hess and selling one May $55 call option (Symbol: IGG EK) for every 100 shares purchased.  

If you don’t understand covered calls or how this specific trade works, please review the December 24 issue, in which I provide a detailed explanation. If you have any queries, don’t hesitate to e-mail me at energystrategist@kci-com.com.

The May options we sold on Hess expired in the money on Friday, meaning that the Hess shares you owned as part of this covered call trade should have been called away from you. In return, you received $55 for every share of Hess you owned.

The Hess covered call trade generated its maximum potential profit of 34.4 percent since my late December recommendation. I’ll now consider the trade closed from the aggressive growth Gushers Portfolio.

Please note that I also hold Hess shares outright in the growth-oriented Wildcatters Portfolio. I still like the long-term fundamentals and recommend buying Hess under USD60.