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Bill Ackman's battle with Herbalife Ltd. (NYSE: HLF) has doomed the nutritional supplement maker's stock to bouts of wild volatility. In just the last month HLF stock has dropped 11.2%, surged ahead 25.5%, fell another 26.8%, and finally advanced another 5%.
Ackman triggered a buying spree last month when he claimed that he was going to deliver a "deathblow" to the company with a presentation on HLF's predatory business model.
While merely uttering "deathblow" plunged the stock into an 11.2% tailspin, the actual presentation on July 22 was underwhelming. The longs seemed to take the advantage back from the shorts as the stock soared 25.5% on the day.
After Ackman's July presentation, where he pledged to all but blow the lid off HLF's alleged pyramid scheme and predatory marketing practices, the company stock soared and was trading at $67.77 on the day.
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But that quick gain, fueled by traders who scoffed at Ackman's renewed offensive against HLF, was erased entirely – and then some – on July 28 when the diet shake vendor's stock dropped as much as 28.8% to intra-day lows of $48.26.
This big loss came when HLF released its second-quarter earnings, revealing that the company fell short of analyst expectations for the first time since 2008.
Since then, HLF has traded back over $52, providing further evidence that this spat between activist investors going long and short sellers following Ackman's lead has had unpredictable consequences on the company's stock.
The most recent jab in this showdown was thrown by Capital Research and Management Co., an institutional investor that loaded up on more than 9 million shares of the diet shake vendor to take a 10.1% stake in the company on July 31. News of this large-scale share purchase at the beginning of the week helped push HLF stock above $50 after it breached a low last week post-earnings.
The best thing to come out of this volatility: Profit opportunities for savvy short sellers, like Money Morning's Capital Wave Strategist Shah Gilani, who bought puts on HLF in July…