Herbalife shares see mysterious rise

The stock has been volatile in the high-stakes battle over the multi-level marketer.

By Jonathan Berr Jan 14, 2013 2:43PM
Credit: Tiffany Rose/WireImage/Getty Images
Caption: Herbalife product at the Nautica Malibu Triathlon
Image File Name: Herbalife_0109013_RM_300Shares of Herbalife (HLF), the multi-level marketer under SEC investigation, were on the rise Monday as investors bet against short-seller Bill Ackman's claims that the company is a pyramid scheme.

Herbalife, based in the Cayman Islands, rose more than 8% at midday Monday to $43.57. The stock has surged more than 30% since the start of the year. There doesn't appear to be any news that could account for the gain, so it could be a short squeeze, which is bad news for investors such as Ackman who profit when stock prices fall.

Wall Street analysts remain bullish on Herbalife.  The average 52-week price target on the stock is $62.29, more than 40% higher than where it currently trades. Sentiment on the stock, though, could easily change depending on the outcome of the SEC probe.

Ackman's campaign has had an impact. According to StreetInsider.com, Herbalife had the largest gain in short interest of any stock on the New York Stock Exchange between Dec. 14 and Dec. 21. Ackman, who has also made a huge bet that struggling retailer J.C. Penney (JCP) will rebound, remains undeterred and has said he thinks the stock's price will go to zero. A presentation his Pershing Square Capital Management firm made about Herbalife minces no words. 
"Pershing Square believes Herbalife is a pyramid scheme because, among other reasons,
distributors earn more than 10 times as much from recruitment as they do by selling the
company’s overpriced products to bona fide retail customers," it says.

Another activist investor, Daniel Loeb of Third Point, has called Ackman's short thesis "preposterous" and last week disclosed that his firm, which has also made big bets on Yahoo (YHOO) and Greek bonds, owned an 8.2%  stake in Herbalife.

Ackman or Loeb will either win or lose big with Herbalife. There will be no middle ground.

--Jonathan Berr doesn't own shares of the listed stocks. Follow him on Twitter @jdberr.

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