Did This Stock's Grim Reaper Just Arrive?

The following video is part of our "Motley Fool Conversations" series, in which consumer-goods editor and analyst Austin Smith and industrials editor/analyst Brendan Byrnes discuss topics around the investing world.

In today's edition, Austin and Brendan talk about the monster drop that Herbalife recently experienced. Investors can be forgiven if they were shocked to see such a drop, because Herbalife actually had a great quarter. So what was the big bad news that sent shares spiraling? David Einhorn popped up on a conference call to pepper management with questions. Frankly, they seemed innocent enough, but if there was one question of suspect, it'd be the one about why management omitted certain vendor categorizations from its filings recently. Brendan and Austin talk about whether this makes sense, and the overreaction that an appearance like this has on related and unrelated tickers.

In you think Herbalife's financials smell a little fishy, there are other, better picks out there. Our chief investment officer's recommendation for "The Motley Fool's Top Stock for 2012." In just one. You can learn more about this stock that Wall-Street hasn't discovered yet by clicking here to download your free copy.

Austin Smith and Brendan Byrnes have no positions in the stocks mentioned above. The Motley Fool owns shares of SodaStream. Motley Fool newsletter services recommend Green Mountain Coffee Roasters and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On May 05, 2012, at 5:47 PM, dhuddle wrote:

    Einhorn can win either way.

    Assume he took his position before the HLF conference call. The stock has dropped 33% based on a few questions.

    He could sell now and make a huge profit.

    At this point, it appears that he controls the price of the stock.

    At the conference on May 16 Einhorn could try to drive the price even lower than iit is now ($47), which is what everyone assumes. BUT if he doesn't have any real ammunition to do that, then the brilliant thing to do would be to drive it higher.

    If, at the conference, he said that he had investigated the company and that at $47 it is a great buy and that he thinks it is worth $65, the price would probably shoot up. If it went from $47 to $65, that is a 38% profilt.

    If he did that, he would become legendary. It sounds as if he didn't do anything illegal and that the market was just stupid and panicked, and how can he be blamed for that? If he did that and made money both ways, it would be amazing and show how powerful and brilliant he is. This would only happen is he decided that his odds weren't good to drive it lower. It seems to me that at this point it might be easier for him to drive the price higher than lower, because driving it lower might not be a sure thing.

    Am I right?

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