Market Overview

Nu Skin Jumps as Pressure on Herbalife Subsides

Shares of multi-level marketing company Nu Skin (NYSE: NUS) traded sharply higher Thursday despite another drop in the Dow Jones Industrial Average. Nu Skin closed the session on Thursday up 5.90 percent to $35.16. The stock had been under significant pressure last week after hedge fund manager Bill Ackman revealed a massive short position in another multi-level marketer, Herbalife (NYSE: HLF), and then proceeded to give a three-hour presentation on his thesis at an investment conference.

Ackman, the billionaire manager of Pershing Square Capital Management, managed to single handedly crush HLF and make his firm hundreds of millions of dollars in paper profits in the process. Over the last couple of days, however, Herbalife, which has a business model that is similar to Nu Skin's, has recouped some of its recent losses. Nevertheless, the stock is still down more than 45 percent in 2012.

Ackman's argument is basically that the company, despite consistent and prolific sales and profit growth, is a pyramid scheme which will eventually come under intense regulatory scrutiny or collapse. He revealed that his firm is short more than 20 million HLF shares.

The controversy surrounding Herbalife, which sells its products through third-party distributors who are compensated on both sales and recruiting of other distributors, has spilled over into other companies that employ similar business models. The most notable of these is Avon Products (NYSE: AVP). That stock also fell last week, but not nearly as steeply as Herbalife and Nu Skin.

All of the multi-level marketing companies sawtheir shares rise on Thursday despite the down market. Avon was up around 1 percent, while Herbalife had added better than 3 percent. Shares of Usana Health Sciences (NYSE: USNA), which was also hit very hard last week, had gained a little less than 1 percent to $31.18. Looking ahead, investors can expect this sector to continue to be very active.

Amid the firestorm unleashed by Ackman, Herbalife announced that it would hold an analyst meeting the week of January 7 to respond in detail to the "distorted, outdated and inaccurate information" presented by Pershing Square. Currently, HLF is trading at near historical low valuations and a number of analysts have come out defending the company saying that there could be more than 100 percent upside based on the present valuation of the stock.

Posted-In: Hedge Funds Movers & Shakers Intraday Update Movers Trading Ideas General Best of Benzinga

 

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