Market Overview

Loeb Follows in Chapman's Footsteps Once Again with Herbalife Long

Shares of Herbalife (NYSE: HLF) were halted on circuit breaker Wednesday after Dan Loeb's Third Point filed a 13D revealing an 8.2 percent stake.

Herbalife has been an extremely volatile stock over the last few months. In December, Pershing Square's Bill Ackman revealed that he sold short about one-fifth of outstanding Herbalife shares.

In a detailed presentation, Ackman labeled Herbalife a “pyramid scheme” and argued that the company was breaking the law. After Ackman's presentation, shares plummeted from the mid $40 range to a low around $26.

Since then, however, a number of other notable investors have come out publicly taking the other side of the trade. In a lengthy letter to investors, Bob Chapman of Chapman Capital revealed that he had put over a third of his firm's capital into Herbalife as he believed Ackman would not be successful in his crusade.

Bronte Capital's John Hempton went on CNBC last week and made similar arguments. Hempton stated that, even though Herbalife's management were a bunch of “scumbags,” Ackman would be unable to convince the FTC to shut the company down.

Although Loeb might be more well known, his investing style is similar to Chapman's. Loeb is known for his nasty letters to the management of companies he is trying to influence; Chapman pioneered the practice -- CFO Magazine labeled him the “Simon Cowell” of American business.

Trading around $38.60, Herbalife is now near a multi-week high. However, there might be further upside from here. Herbalife's management has scheduled an analyst presentation for Thursday to address Ackman's charges.

Posted-In: Bill Ackman Bob ChapmanNews Hedge Funds Intraday Update Movers Trading Ideas General Best of Benzinga

 

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