Two of the best-known hedge fund managers in America are battling over supplement maker Herbalife (HLF), with Pershing Square's Bill Ackman attacking from the short side and Third Point's Daniel Loeb hitting back with the recent announcement that he's taken a sizable long position.
Who's ultimately right in terms of the stock's direction amounts to a coin flip at the moment. Both Ackman and Loeb have the capital and the stomach to wage a considerable fight over Herbalife, and neither has said anything to suggest they're in this only for the short haul.
Pershing Square has a massive short in Herbalife, meaning it's betting on the stock to fall -- Ackman has questioned the company's business model in which sellers of Herbalife products recruit others and profit from their sales. Third Point, meanwhile, has taken a more than 8% stake in the company, indicating Loeb's clear belief that Herbalife is a legitimate enterprise whose shares will advance when Ackman's doubts are shown to be wrong.
So who's got it right? Hitha Prabhakar, retail analyst and author of "Black Market Billions," says it's not one or the other right now.
"Really they both are winners," she tells Jeff Macke in the accompanying video. Ackman shorted the stock when it was quite a few points higher, and he benefited from a drop of more than 30%. Then Loeb, who is also a director of Yahoo! Inc., the publisher of this website, disclosed his interest, which sent the stock back to the upside.
For the at-home investor, this might be best considered great theater, but a terrible trade. Prabhakar believes that a door-to-door product-selling model wouldn't work for Herbalife for the long term, though if it focuses on growing through online sales and social media channels, it "might have a surviving chance."
Should Ackman be found right and the company's a pyramid scheme, as he has alleged (but a criticism that Herbalife has denied), it certainly will have a problem. "But as of now, there's no evidence of that," Prabhakar says.
Who do you think is right, Ackman or Loeb? Weigh in below.
- Investment & Company Information
- Bill Ackman
- Daniel Loeb