Should the FTC take action against Herbalife, investors will likely project the effects onto shares of Nu Skin Enterprises, Inc. (NYSE:NUS) and USANA Health Sciences, Inc. (NYSE:USNA), too. Although Ackman has never once mentioned those firms, shares of both companies plunged last December following Ackman’s original Herbalife presentation. Their recent recovery has paralleled the rise in shares of Herbalife.
If Ackman is right about Herbalife, expect a similar recurrence. However, if regulators fail to act, both stocks appear to be solid investments.
USANA Health Sciences, Inc. (NYSE:USNA) beat earnings expectations each of the last four quarters, particularly last quarter, when it absolutely crushed expectations ($1.72 per share against a $1.30 estimate). Despite shares rising 136% year-to-date, the company remains cheaper than the broader market, trading with a price-to-earnings ratio near 14. Analyst Tim Ramey at DA Davidson raised his price target on the stock to $92 last month, suggesting that shares could have further upside of about 16%.
Likewise, Nu Skin Enterprises, Inc. (NYSE:NUS) has also been crushing earnings estimates in recent quarters. But more importantly, it’s been returning that cash to shareholders in the form of a large stock repurchase program. Earlier this month, the company announced that it would boost its share repurchase program by $400 million — roughly 8% of the company.
Nu Skin Enterprises, Inc. (NYSE:NUS) isn’t as cheap as USANA Health Sciences, Inc. (NYSE:USNA)–with a P/E ratio near 22, it’s more expensive than the market. Still, analysts remain bullish — JP Morgan raised its price target to $97 earlier this month, suggesting a 13% upside from current levels.
Investing in Herbalife
Given that Ackman has taken a bath on his J.C. Penney position, and Herbalife Ltd. (NYSE:HLF) shares having appreciated so significantly, some investors might have expected the activist hedge fund manager to cover his short.
But they’d be wrong.
In his recent letter to investors, Ackman actually appears more confident in the trade than ever before.
Ultimately, it will come down to a question of regulatory action — will the FTC shut the firm down? Ackman believes it could happen in the near future. If that’s the case, it wouldn’t be wise to hold Herbalife shares — or the other multi-level marketing firms.
The article Herbalife Shares Could Become Worthless Within One Year originally appeared on Fool.com and is written by Sam Mattera.
Sam Mattera has no position in any stocks mentioned. The Motley Fool has the following options: long January 2015 $50 calls on Herbalife Ltd. (NYSE:HLF).
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