Penny stocks can be extremely volatile, and LinnCo LLC (NASDAQ:LNCO) is a good example. On Monday, LNCO stock climbed from $0.75 to $1.58. That’s a 110.7% return in just one trading session!
Of course, it wouldn’t be called “volatile” if the stock is only going up. On Thursday, March 10, around noon, LNCO stock tumbled from $1.31 to $0.88. Imagine owning this stock and seeing it plunging 32.8% in just a few hours. That would hurt!
What’s Going on with LNCO Stock?
Sentiment aside, let’s take a look at what’s really going on with the company.
Well, as it turns out, there is no company. LinnCo was created in 2012 by Linn Energy LLC (NASDAQ:LINE) as an affiliate with the one purpose of owning units of Linn Energy. (Source: “About LinnCo,” LinnCo LLC, last accessed March 10, 2016.)
So, I guess we have to turn to Linn Energy to see what’s really going on…
Unsurprisingly, LINE stock also had great gains on Monday and but was plunging badly yesterday.
Linn Energy is an oil and gas company based in Houston, Texas. The company controls oil- and gas-producing assets in many states in the U.S.
As oil prices started a dramatic decline back in the summer of 2014, so did the share price of oil and gas companies. In less than 10 months, LINE stock has fallen from more than $13.00 a share to just $0.38.
But then, oil prices started to recover. Last week alone, WTI crude oil prices surged 9.5%, from $32.78 to $35.92 a barrel. And sentiment around energy stocks started to change. Linn Energy started to climb back up.
And that’s not all. Because the company was a short seller favorite, the change of direction in LINE stock resulted in many short sellers running to cover their positions. The short squeeze made the surge in Linn Energy much more pronounced. And as you would expect, the surge is also reflected in Linn Energy’s affiliate, LinnCo LLC.
The Bottom Line on LNCO Stock
So, now you know what’s affecting LinnCo stock. Movements in oil prices affect Linn Energy, and because LinnCo owns Linn Energy shares, the effects are also reflected in the LNCO stock price.
Therefore, it should come as no surprise that when oil prices started showing weakness on Thursday, both companies dropped hard.
Going forward, the future of LINE stock and LNCO stock will continue to be highly correlated with oil prices. However, based on the nature of LinnCo’s business (or the lack thereof), LNCO stock could be the more volatile pick.