Herbalife Shaping Up to Be a Healthy Value

It could be stronger, though. My one gripe with this insider buying is that the past sellers took out degrees more money from their recent sales than they are betting long with now. Still, the insider signal definitely meets my minimum criterion for researching a firm further.

Digging into Herbalife finds it looking similar to a lot of insider-bought firms these days. While it looks cheap by historical measures, that fact alone is not enough to warrant pulling the trigger on the stock. The whole concept of value continues to be defined down as the recession takes hold. The difference between a high- and a mid-single-digit price-to-earnings ratio doesn't look like much when reviewing valuation metrics on a computer screen. But that seemingly insignificant P/E reduction from 8 to 6 times expected EPS costs you a quick 25% if you are holding the "cheap" stock when it occurs.

So although Herbalife now trades for only 7 times expected earnings, 0.5 times trailing sales, 3 times trailing earnings before interest, taxes, depreciation and amortization (EBITDA), with an indicated yield of over 4%, don't count on that to put an absolute floor under this stock. The weight of investors' pessimism could yet make shares even cheaper.

But in terms of one's bottom-fishing opportunities in this market, stocks like Herbalife look as attractive as any. For all the reduced expectations that have hit its stock hard, Herbalife is still expected to make a solid profit in the coming year. With the U.S. dollar likely to depreciate in the coming year, management's low-end EPS estimates may even prove too pessimistic. Meanwhile, insiders are buying in personally, the firm is buying back stock as well, and cost-cutting measures are being executed.

Herbalife will be a survivor of this recession. And when valuations do start to matter again, I expect Herbalife's shares to rise better than most.

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Know What You Own: Other drug wholesalers include Cardinal Health (CAH - commentary - Cramer's Take), McKesson (MCK - commentary - Cramer's Take), AmerisourceBergen (ABC - commentary - Cramer's Take), NuSkin (NUS - commentary - Cramer's Take), Grupo Casa Saba (SAB - commentary - Cramer's Take) and BMP Sunstone (BJGP - commentary - Cramer's Take).

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At the time of publication, Moreland was long HLF, although holdings can change at any time. Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.