If you didn’t know better, it would be easy to conclude that the multiyear war between Bill Ackman and Carl Icahn over Herbalife Ltd. (NYSE:HLF) was staged, scripted by the likes of suspense/thriller master Michael Crichton. Icahn loves Herbalife stock enough that he owns about a fifth of the float, while Ackman hates HLF so much he’s shorted $1 billion worth of it.
The two haven’t been shy about publicly explaining why the other is wrong about Herbalife stock. And each man has put their own money where their mouth is the whole time.
That’s what made Friday’s news so odd. Icahn is reportedly mulling an exit of at least part of his stake HLF … to none other than Ackman, who has been betting against the very same stock since 2012.
Don’t Read Too Much Into It
Ackman’s public response to the news was predictable, spinning Icahn’s intended exit in a bearish way by saying “I think he knows this (Herblife) is toast,” suggesting Icahn knows Herbalife stock is in trouble even though the FTC’s ruling in July clearly indicated the agency doesn’t deem the company’s structure a pyramid scheme.
Perhaps he’s right. Perhaps Icahn thinks it’s only a matter of time before HLF implodes on itself.
Then again, consider the source.
Ackman desperately needs Herbalife stock to lose ground, and soon, so of course he’s going position anything he can to convince investors that Herbalife shares should lose ground.
As a refresher, the Herbalife short is one of Pershing Square’s (Ackman’s hedge fund) key positions, and has been since 2012. It has not been an easy one for the fund’s investors to digest. Last year, Pershing Square lost 20% of its value, largely on the 42% gain logged by HLF stock in 2015. Herbalife shares are still up 7% year-to-date, even after Friday’s 7% tumble. Ackman has been stubbornly holding onto it, and may now feel trapped in the short position by the adamance of his own words.
There’s also the distinct possibility that Icahn’s sale of his stake in Herbalife stock isn’t anything more than a sale to lock in a profit.
He’s certainly no stranger to profit-taking, even of market-darling stocks that most are perpetually bullish on. Case(s) in point? In June of last year he sold his Netflix, Inc. (NASDAQ:NFLX) stake, for a profit of $1.6 billion. In April of this year, he sold all of 46 million of his Apple Inc. (NASDAQ:AAPL) shares, locking in another big gain after holding them for nearly three years. Note than neither sale prompted any third party to suggest Icahn thought either company was “toast.”
Or, the sale could have been motivated by Icahn’s bigger-picture bearish outlook, which would impact all stocks.
Bottom Line for HLF Stock
Even taking Ackman’s self-serving “Herbalife is toast” comment out of the equation, the notion that Icahn’s involvement in the company instills confidence makes a little sense — if Icahn doesn’t want in, why should anybody else?
Even that premise, however, is a bit of a stretch with some more thought.
Yes, there’s certainly a bit of a credibility bump when Carl Icahn owns a part of a company. It’s not as if a stock has to garner such institutional-level participation to thrive though. There are lots of stocks Icahn doesn’t own, most of which are up at least a little for the past few years.
The reality is, while hedge fund interest makes for good headlines, most individual investors make their buy/sell decisions on a stock based on their perception of that company’s merits and value. Ditto for other institutions.
Remember: Icahn began buying HLF in 2012, and that didn’t stave off a 2014 pullback of more than 60% any more than Ackman’s short stake prevented the 2013 rally of more than 170%. These guys are just riding the same trains everyone else is riding, unable to actually steer them.
In other words, of all the reasons one might want to not own (or even short) HLF stock, Icahn’s sale isn’t one of them.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
