Latest Herbalife Probe Reinforces Underlying Risk

Whether its marketing practices are legal or not, Herbalife is simply too difficult a business to nail down. Investors are better off seeking growth elsewhere.

Apr 14, 2014 at 11:40AM

Herbalife (NYSE:HLF) remains an enigmatic business. The company can seemingly refute any claims regarding the legality of its multilevel marketing business and has the support of some extremely intelligent, experienced mega-investors. At the same time, the consumer-level evidence against it is hard to refute, and the scarcity of regulatory support suggests there are still many unknowns. Last week, the FBI announced a criminal investigation into the company's practices -- sending the stock down double digits and giving its most outspoken (and anti-investment) opponent, Bill Ackman, new ammunition for his quest to take the company to zero. Where does the retail investor stand?

Mixed messages
With many businesses that attract negative PR -- oil, cigarettes, and firearm businesses come to mind -- there is no debate as to their social, environmental, or geopolitical effects. And when it comes time to show the money that flows through these companies, their investors focus little on what is already known.

Herbalife, while not a slinger of death-inducing, world-melting products, is widely known for its targeting of people on the lower end of the socioeconomic spectrum to benefit a few people higher up the chain of command. Its sales, too, are hard to ignore, as the company continues to post healthy sales and profit growth. Meanwhile, one of the uberinvestors of the world, Bill Ackman, has put $1 billion toward the notion that the company is operating illegally. He's spent hundreds of millions supporting his thesis and keeping the short alive, all while his adversaries (Carl Icahn, among others) pile in on the other side.

Herbalife's new auditor, PWC, completed a multiyear re-audit and found no irregularities in the company's statements. At the same time, the biggest Hispanic rights organizations in the United States came out asking politicians to intervene in what they claim is the "worst player -- bar none -- operating in the Latino communities across the country."

For the average investor trying to determine the legitimacy of Herbalife's business, the evidence seems nearly irrefutable on both sides of the line.

The only hope for some sort of settlement is a decision in Washington, and that may be getting closer. Last month, the Federal Trade Commission announced a civil probe into the company's marketing practices. Now, CNBC reports that the FBI is conducting its own. In true Herbalife style, management claimed they had no knowledge of such an investigation, which seems odd.

Where to stand
What will come of the FBI investigation or the FTC one? Who knows. To Herbalife's advantage, the company operates in a gray area that may allow it to do what it does without threat of regulatory risk, at least in the near term. For investors, the story remains the same: Look elsewhere. There are plenty of companies growing quickly and booking attractive year-over-year gains, and they don't attract near the conflict and drama that this one endlessly does. Let the superstar egos duke this one out. If a final answer comes up, then one can consider the way to play it.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Michael Lewis has no position in any stocks mentioned. The Motley Fool has the following options: long January 2016 $57 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information