Ugly Turns Pretty for Herbalife

Editor's note: This Breakout Stocks Alert was originally sent to subscribers Dec. 6 at 2:46 p.m. EST. It's being republished as a bonus for TheStreet.com and RealMoney.com readers.

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Herbalife (HLF Quote - Cramer on HLF - Stock Picks) announced a seemingly odd, but potentially very positive, piece of news today, and we'd like to update readers. The stock was recently trading at $40.54.

This afternoon, Herbalife said it would sponsor the Mexican television show La Fea mas Bella, a show akin to the hit ABC show Ugly Betty. According to the press release, the lead character will use Herbalife products as she undergoes a physical transformation in six episodes of the show. This storyline is expected to air in January 2007.

La Fea mas Bella is one of the most popular Spanish-language shows in both the U.S. and Mexico, and this product placement will put the Herbalife brand in front of millions of Spanish-speaking U.S. and Mexican residents. Herbalife earns 20% of its revenue in Mexico, a huge growth market for the company, with revenue increasing 87% in the country so far this year. This news could help Herbalife continue that momentum.

We were certainly bullish on Herbalife when we initiated the position at a shade above $33 a share in early September, and we are just as positive today with the stock above $40. We had initially expected the stock to hit $40 within 12 months, but given the company's solid performance, we believe a $50 share price is achievable by mid-2007.

Herbalife has been growing its revenue at about 20%, with earnings growth much greater than that, though the stock is trading at just 17 times expected 2007 earnings of $2.45 a share. Considering that Herbalife just issued bullish fourth-quarter and full-year 2007 guidance, is improving its balance sheet, generates plenty of cash and is a beneficiary of a weakening dollar, we can't help but be bullish on this stock.

The bears on Herbalife are concerned about the potential for increased regulatory oversight of the U.S. multilevel marketing industry, but there is no sign that legislation is on the near-term horizon. Also, in any case, the U.S. represents less than 20% of Herbalife's sales, and the stock's modest valuation is certainly not Google-esque.