This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Herbalife Is Resembling a Trip to the Casino

NEW YORK (TheStreet) -- The Federal Trade Commission is investigating the sales and trade practices of Herbalife (HLF - Get Report), a multi-level marketing heath food and supplement supplier. As ugly as it may be, you had to see this one coming. Anyone taken by surprise Wednesday genuinely needs to reflect if Herbalife is a stock in which they want exposure.

Increasingly we will witness Herbalife become political. Once politics enters it's a crapshoot what will happen. Forget about right and wrong. Politics is about wielding power and influence that doesn't necessarily get it right. Take Tesla Motors (TSLA) as an example. The electric-powered automaker was shown the exit door by New Jersey because the company offers an innovative and customer-centric purchasing process.

Tesla didn't stand a chance. A state-sanctioned exclusion of Tesla was an easy layup for a well-organized and numerically superior dealership network fearful of losing their lucrative business model. Tesla and shareholders can anticipate the drama and results of New Jersey to play out in many more states to come. Is it right and just? No way, but it's reality and Tesla will need to find an alternative (and perhaps more expensive) solution.

The battle being waged in network marketing stocks is at a whole different level. The rewards and risks are eyeball popping, with billion-dollar bets being wagered in every direction. The average investor has no idea what's going to happen next until after it happens. Regardless if you're long or short, you may make the right call and still lose.

If you owned Herbalife early in 2012 or earlier, there's a fairly reasonable chance that if May's price crash didn't shake you out of your shares, December's did. Investors that exited to limit losses only to watch the company make new all-time highs were frustrated, but shorts who bought into Pershing Square Capital Management's Bill Ackman short thesis had their heads handed to them.

Pershing Square is risking enormous amounts of money that the wheels will fall off of Herbalife. Political contributions and lobbying expenses are a small cost of doing business if it hastens a regulatory unfriendly environment for Herbalife. On the other side of the coin is activist investor Carl Icahn with resources, influence, and financial wherewithal to go toe-to-toe with Bill Ackman.

Adding confusion and a wild card element are health-related mega-network marketing suppliers Nu Skin Enterprises (NUS) and Usana Health Sciences (USNA). These companies have the capacity to cause losses for Herbalife investors. Guilt by association could turn into Herbalife's greatest liability.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HLF $57.95 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs