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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Herablife (NYSE: HLF ) and Nu Skin Enterprises (NYSE: NUS ) took a hit for the second time this week, falling 19% and 14%, respectively, after activist investor Bill Ackman continued to bash Herbalife and, by extension Nu Skin, which operates under a similar business model, in a presentation on his short position in Herbalife.
So what: Ackman gave investors a 342-slide, three-hour presentation yesterday on why he thinks the company is a pyramid scheme, saying that the company's distributors, or salespeople, make more money recruiting new distributors than selling the product. Ackman added that over Herbalife's 32-year history, 1.9 million salespeople have failed to sell the products, which cost them individually $2,000 in training and other costs. A company spokeswoman responded by calling the presentation a "malicious attack" and said it was based on "outdated, distorted, and inaccurate information."
Now what: Herbalife is planning an analyst day in January to respond to Ackman's claims. Over the past three days, the stock has lost more than a third of its value, so management clearly needs to reassure the market about its model. I didn't see Ackman's presentation, but considering the size and history of Herbalife, his remarks seem suspect. Other observers have pointed out that Ackman has been short the stock for a number of months but chose yesterday to make the presentation as he was believed to have a number of put options expiring today. I wouldn't be surprised to see these stocks bounce back after Herbalife's analyst day response.
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