Herbalife Takes Its Stand

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Direct-selling health and nutrition corporation Herbalife (NYSE: HLF) may seem to be on the defense, especially as many of their high-profile critics are looking to go to war. One of these critics, Bill Ackman, was reported to have said that he would bet upwards a billion dollars against the company, which then saw stock prices drop for few days in the last week of December. Pershing Square hedge fund manager Ackman also claims that the corporation’s revenue generating plan is just a pyramid scheme. However, are these, and other actions from naysayers, enough for Herbalife shareholder to start selling?

Herbalife's Stunning Performance in the Market

The Jan. 7 trading day might not have looked promising for stakeholders, as did the drop in late December. Midweek, however, has seen share prices reach up to almost $42 from about $37 at the beginning of the week. Jan. 8 saw Herbalife stock close at $39.95, which was a hefty 4.17% increase, or $1.60, from when it opened that day. Its trading range was pegged at $24.24 to a high of $73.00 for 52 weeks. After hours, there was an increase of $0.35, or 0.88%, which is not bad for a currently embattled, highly controversial stock, a phenomenon that Daniel Loeb is taking advantage of.

Creating Something Good from Bad

Third Point acquired a passive stake of 8.2% in Herbalife, just one day prior to the latter hosting a meeting to react to allegations of it being a pyramid scheme operator and help resolve any investor concerns. Herbalife is hosting a meeting with various analysts and investors to specifically clarify any issues about the business model, viewpoints on rules and regulations, as well as update the public about the growth potential it expects. Incidentally, Loeb also vows to clear the air with other critics present and lock horns with Ackman due to the latter’s claims. This move is definitely a strategic one for Herbalife and its investors, especially as this is bound to strengthen investor confidence. In addition to this, news such as the purchase of new industrialized facilities to increase manufacturing capacity for customers all over the globe will help bolster support for Herbalife. Other direct sellers have also seen their shares likewise drop due to pyramid scheme insinuations, including Nu Skin Enterprises (NYSE: NUS).

The Race of Being the Best Direct-Selling Company

Nu Skin Enterprises, while also a direct-selling company, focuses mainly on skin care products. The company reports that it has continued to grow over more than a decade of experience in the industry, and that it will augment dividend payments by halfway through 2013. Have the implications of being a direct seller, and all that the label implies, hurt sales? Yes, but not by much over the long term. The stock’s low for 52 weeks was $32.56, the high is $62.02, and performance indicators had shown gains of 1.19% for the last quarter of 2012. On the trading day of January 9, the company saw shares drop by $1.54 per, or 3.63%, to $40.90. Overall, it is still an attractive choice for investors looking for good value.

Another similar company is weathering the proverbial storm as well, although it is probably because of their non-MLM (multi-level marketing) business model. Beauty product direct-seller and pioneer Avon Products, Inc. (NYSE: AVP) has a fifty-two week range of $13.70 to $23.58, although it did close lower for the Jan. 8 trading day at $15.50, or lower by 0.39 percent. In the first week of January, Merrill Lynch analysts upgraded Avon’s stock to “Buy” from “Neutral” due to its earning potential. The price target for the stock is $20.

Herbalife Thrives

Herbalife is one of the strongest direct sellers catering to the health and fitness market, and has been around for quite a while. No matter the controversy, and looking at its performance over the past decade, its impressive showing makes it an excellent buy for shareholders, especially those who are willing to hold onto their stocks for the long-term.


RhodoraDagatan has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd.. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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