Bill Ackman Concedes Defeat On Herbalife (HLF)

It's been a rough year for hedge fund manager Bill Ackman. His decision to short Herbalife (HLF) blew up in his face after activist investor Carl Icahn took him down, and his bet on a J.C. Penney (JCP) turnaround met with similar failure. During that time, Ackman became a "contrarian indicator" for investors -- to buy whatever he was shorting and to short whatever he was buying.

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Yet some interesting news has now emerged about Herbalife -- Ackman, who had stated he "hasn't covered a share" of his $1 billion short position, has now covered 40% of the position, replacing it with out-of-the-money put options. This has led to a lot of speculation that Ackman could eventually be forced to cover his entire position, which is extremely likely considering the 44% surge the stock has experience over the past twelve months and up 130% in 2013. Icahn's open declaration of war against Ackman also brought in other hedge funds, which piled on their bets against Ackman, who they knew would be forced to cover even more shares. Ackman's original accusations against Herbalife claimed that the company's marketing system, in which lower level sales representatives "climbed the ladder" by recruiting more sales representatives, amounted to an unsustainable pyramid scheme. The company's representatives profit from every sales representative under them -- a similar system used by its rival, Nu Skin Enterprises NUS. Ackman originally pinned the company with a price target of $0, and presented a three hour long, 342-slide long presentation of his short case against the company. He had surprisingly pledged that he intended to donate 100% of the proceeds his charity, the Pershing Square Foundation. Herbalife sells weight management, nutritional supplements, energy, sports, and fitness products through 2.7 million independent distributors. In China, it sells its products through retail stores. The company's products are available in 79 countries, and expanded last December by acquiring a major manufacturing facility in South Carolina. The company fared well last quarter, reporting an 8.5% year-over-year jump in earnings and an 18.1% gain in revenue. By comparison, Nu Skin reported even stronger growth, with a 23.2% gain in earnings on a 15.1% increase in revenue. By all accounts, Herbalife is an undervalued growth stock, with a 5-year PEG ratio of 0.84 and a forward P/E of 16.75. The stock also pays a quarterly dividend of $0.30 per share -- a 1.8% yield at current prices. Other News About HLF Bill Ackman's Dizzying Takedown Of Herbalife A look back at Ackman's original bear case against Herbalife. Bill Ackman's Herbalife Retreat Ackman throws down the towel after ten months. Other Stocks in the News Bank of Japan Warns of Severe Global Impact From U.S. Fiscal Standoff Can the U.S. get its act together before it sinks the world economy? Twitter Reveals Rip-Roaring Growth, Big Losses Ahead of IPO Will Twitter bomb its IPO? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Oct 7, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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