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The Herbalife Lotto Ticket, Should You Buy In?

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On Wednesday, the Ira Sohn investment conference will bring a decent amount prominent money managers, where they will speak about equities, the general economy, and other trading ideas. Bill Ackman, David Einhorn, Jeff Gundlach, and John Paulson are all scheduled to speak, as well as 10 others.

The company everyone should be watching is Herbalife (NYSE: HLF).

Back on its May 1st earnings call, shares of Herbalife caught fire after notable hedge fund manager David Einhorn of Greenlight Capital had a few questions to management about some of the company's disclosures.

The gist of Einhorn's questioning focused on the perception that Herbalife is little more than a multilevel-marketing scheme. It is as yet unclear if Greenlight Capital has a short position in the stock. The hedge fund manager asked management for details about the hierarchy of supervisors, distributors, and consumers through which the company's products reached their end markets.

Subsequently, shares shed 34 percent from the previous closing price, and haven't recovered at all since.

Management of Herbalife came out later, downplaying the questions by Einhorn from earlier. Herbalife said via press release, "To be clear: Mr. Einhorn's questions raised no new subjects or concerns. They were elementary questions usually asked by investors new to our industry. These are issues that have been thoroughly addressed before."

However, shares saw immediate weakness because of his reputation as a damn sharp investor - one of the best in the world. Einhorn began shorting Lehman Brothers stock more than a year before the once-venerable investment bank collapsed. He is also known for his Green Mountain Coffee (NASDAQ: GMCR) short, where he presented his thesis back in October at the Value Investing Congress. Shares of GMCR have decreased about 70 percent since the presentation.

Herbalife could see the greatest move from Ira Sohn, either long or short. So place your bets now.

The general consensus is Einhorn could use his speaking slot at the Ira Sohn conference to present a short thesis on the company, which could lead the stock down further still. However, if Einhorn fails to mention the name, shares could rapidly recover to the upside.

According to the analysts Benzinga spoke to, the whispers have been that Einhorn will most likely mention Herbalife negatively, hence why shares are still down nearly 40 percent since the initial questions were raised. Analysts have told us that the cash flow is solid regardless of what Einhorn says.

Though, these analysts said they would be interested to see what Einhorn has to say, and adjust their estimates and targets accordingly if Einhorn brings up something they did not take into account before.

However, with shares already down 40 percent, it might be less risky to actually long shares of Herbalife, a contrarian view since everyone is expecting Einhorn make some negative comments about the company.

Although, this does not mean that Einhorn will not do more research in the following months and presents his short thesis at the Value Investing Congress in October, as he did with Green Mountain Coffee. So place your bets, it is going to be a wild ride.

Posted-In: David Einhorn Ira Sohn ConferenceNews Hedge Funds Events Trading Ideas General Best of Benzinga


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