Herbalife Ltd. (HLF), Medifast, Inc. (MED), Weight Watchers International, Inc. (WTW): Can These Marketers Get Your Portfolio in Shape?

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The global marketer of nutritional and weight loss products has been in the news lately for all the wrong reasons. Within the past month, the company has revealed an SEC inquiry into its operations, has recalled certain of its products due to allergy concerns, and has been the subject of a public feud between hedge fund managers over whether the company is a pyramid scheme. The combination of effects has been hard on investors, leading to weak stock price performance over the past year.

In FY2012, Herbalife Ltd. (NYSE:HLF) reported solid financial results, with increases in revenues and operating income of 17.9% and 17.6%, respectively, versus the prior year.  The company’s sales growth benefited from its global reach, with strong, double-digit sales gains in the Asia-Pacific and Latin America regions.  Herbalife was also able to continue recruiting and retaining a productive independent sales force in 2012, with an 18% increase in active resellers of its products.

Despite the risks of its business model, Herbalife has strong operating cash flow and a solid balance sheet. The company is also making investments to increase its product manufacturing capacity, with the goal of manufacturing roughly 65% of its product line over the next few years. Once Herbalife Ltd. (NYSE:HLF) improves its financial reporting and overall transparency, it has the makings of a great investment story.

The weight loss industry is a tough place to do business, with short shelf lives for products and heavy marketing expenditures.  Investors should stick with the companies that selling not just a product, but a way of living.  Of the three players, only Medifast is delivering for investors and is one for the portfolio.

The article Can These Marketers Get Your Portfolio in Shape? originally appeared on Fool.com and is written by Robert Hanley.

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