Market Overview

Herbalife Hit After Ackman Reiterates Short

Shares of Herbalife (NYSE: HLF) traded lower on Monday after hedge fund magnate Bill Ackman reiterated his short position. Appearing on TastyTrade, Ackman said he had not covered a single share.

In December, Ackman came public with his Herbalife short, revealing that he had sold short about one-fifth of Herbalife's outstanding shares. At a special session of the Ira Sohn Investor Conference, Ackman laid out his bearish thesis on the company, arguing that its multi-level marketing strategy went so far as to become a pyramid scheme, making the company's business practices illegal.

Herbalife had been trading near $70 until last May. During an earnings conference call, David Einhorn asked Herbalife's management a few questions. Given Einhorn's history as a noted short seller, many believed that Einhorn himself was shorting the company.

It was a bit of a surprise when it turned out to be Ackman. Still, revealing his short position caused shares to take another dive, dropping as far as $26. Since then, shares have found a bottom, and have been steadily rallying higher.

Adding to the rally, several smaller hedge fund managers have spoken publicly against Ackman's thesis. In an appearance on CNBC last week, Bronte Capital's John Hempton went so far as to call Herbalife's management “scumbags” but said that their business model was solid.

Around the same time, Chapman Capital's Robert Chapman went overweight Herbalife to an extreme degree, making it a 35 percent position in his fund. In a letter, Chapman argues that Ackman's thesis rests on the FTC taking action against the company, something Chapman doesn't believe is likely.

At any rate, Ackman appeared unflustered on Monday. He even went so far as to say that he had created a great long entry point if investors believed Herbalife to be a great company. For those who wanted to bet against the company like himself, he thought it might be better for typical investors to buy puts.

At any rate, those involved in Herbalife should keep January 10 marked on their calendar. On that date, Herbalife is planning to give their own detailed presentation, with the aim of rebutting much of Ackman's claims.

Shares of Herbalife traded down about 1.50 percent on Monday. Traders should expect more volatility in the coming sessions.

Posted-In: Bill AckmanLong Ideas Short Ideas Hedge Funds Intraday Update Movers Trading Ideas General Best of Benzinga

 

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