Numbers Support the Herbalife Tilt

 | Jan 17, 2013 | 10:42 AM EST
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Herbalife (HLF) should be higher, not lower, given this preannouncement of a better-than-expected quarter.

Earlier, before the release of this good news, I speculated on the notion that if Herbalife can maintain its actual business momentum this battle will come down Bill Ackman and a potential U.S. government investigation vs. the firepower of Dan Loeb and Carl Icahn, two very motivated hedge fund managers who think that the negatives are much ado about nothing.

Dan Loeb bought this stock very well, right into the teeth of Ackman's anti-charm offensive against HLF. My friend David Faber speculated that Loeb may have exited the stock, the implication being that any trade predicated upon Loeb's continued presence in the name may be misplaced.

After this preannouncement, that may no longer be the case.

Remember, everyone has a say here. Herb Greenberg has done a documentary that calls what HLF does into question. Ackman thinks this whole thing is one big pyramid scheme, which is basically illegal in this country.

Loeb and Icahn may have thought it cheap and still do.


I look at the numbers and what CEO Michal Johnson has said repeatedly on "Mad Money," that the company is cheap and the cash flow strong and the capital will be used to buy back stock because the business model allows for a huge spewing of cash. Remember, caught up in the whole negativity of mid-level marketing is a simple fact: it is a very inexpensive business because the distributors do your advertising and there is no brick-and-mortar retail expense.

That's why there is so much cash flow to buy back shares.

I understand that there were some market participants who are disappointed with the fact that Johnson didn't detail what the buyback from here will be like.

Those participants don't understand tactics or strategy.

Johnson's tactics are to be coy about timing. Why not buy cheaply rather than expensively?

His strategy? I believe that if the stock stays down here because of the publicity the company would be better served being private as it was before Johnson got there.

I continue to believe it is a battleground of enormous proportions, but for the moment the axis has tilted toward HLF/Loeb and against Ackman/potential government investigation because of these quintessentially better-than-expected numbers.

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