Seeking Alpha
Long/short equity, value, special situations, investment advisor
Profile| Send Message|
( followers)  

This article is not intended to rehash the drama surrounding Herbalife (NYSE:HLF). Articles have well documented the Multi-Million Dollar wrestling match between Bill Ackman's hedge fund Pershing Square and Herbalife investors including Carl Icahn. As a summary, Ackman and his hedge fund announced a short position in the firm in the fourth quarter of 2012. He claims to still be short, as other investors see the depressed stock price in HLF which has fallen since Ackman announced his short position, to be a blessing in disguise. Carl Icahn and others have been initiating long positions and adding to their existing ones. Is this a case of group think, and Ackman has been able to think outside the box, or are the 362 Intuitions and Funds right about the firm?

On December 31, 2012, Blackrock, Inc. (NYSE:BLK) reported in an SEC filing that the investment manager nearly doubled its stake in HLF throughout the fourth quarter of 2012. Blackrock owned approximately 3.1 Million shares as of September 30, 2012 totaling 2.91% of the outstanding float of the firm. After the most recent filing, the firm increased the total ownership to 5.56 Million shares or 5.15% ownership of the company. Blackrock is not the only institution with large stakes in the firm. Below is a list of companies and ownership according to Yahoo Finance.

Top Institutional Holders
HolderShares% OutValue*Reported
MORGAN STANLEY6,541,5666.06310,070,228Sep 30, 2012
VANGUARD GROUP, INC. (THE)5,735,6915.31188,933,661Dec 31, 2012
BlackRock Institutional Trust Company, N.A.3,143,9772.91149,024,509Sep 30, 2012
R R PARTNERS LP2,819,2002.61133,630,080Sep 30, 2012
TIAA-CREF INVESTMENT MANAGEMENT, LLC2,774,4352.57131,508,219Sep 30, 2012
BNP PARIBAS INVESTMENT PARTNERS, S.A.2,692,4272.49127,621,039Sep 30, 2012
STATE STREET CORPORATION2,446,9482.27115,985,335Sep 30, 2012
Herndon Capital Management, LLC2,399,8172.22113,751,325Sep 30, 2012
CAPITAL GROWTH MANAGEMENT L.P.2,366,5002.19112,172,100Sep 30, 2012
FMR LLC17,082,77415.82809,723,487Sep 30, 2012
Top Mutual Fund Holders
HolderShares% OutValue*Reported
FIDELITY GROWTH COMPANY FUND10,800,21010.00496,485,653Nov 30, 2012
Prudential Jennison Mid-Cap Growth Fd1,972,7041.8390,685,202Nov 30, 2012
CGM FOCUS FUND1,850,0001.7187,690,000Sep 30, 2012
FIDELITY BLUE CHIP GROWTH FUND1,620,5311.5074,495,810Nov 30, 2012
VANGUARD MID-CAP INDEX FUND1,498,4451.3971,026,293Sep 30, 2012
VANGUARD TOTAL STOCK MARKET INDEX FUND1,494,9221.3870,859,302Sep 30, 2012
Munder Mid-Cap Core Growth Fund1,410,4001.3166,852,960Sep 30, 2012
FIDELITY MAGELLAN FUND INC1,216,1001.1355,904,117Nov 30, 2012
VANGUARD EXPLORER FUND, INC.998,0100.9251,247,813Oct 31, 2012

98% of the HLF's entire float is held by Institutional and Mutual Fund Owners, according to Yahoo Finance. These 362 firms, many of which have purchased the stock at higher prices have not indicated any interest in dumping their shares. Although, as of January 31st, 2013, 33% of the float was borrowed and shorted, at least 20% of which or 60% of the entire float is currently shorted by Pershing Square and Ackman.

HLF has also bought back shares over recent quarters and years. According to a related article, HLF has taken opportunities to repurchase shares at various levels.

2009 - 4 million shares at $18.20

2010 - 5.7 million shares at $26.13

2011 - 5.5 million shares at $54.27

2012 Q1 - .7 million shares at $67.24

2012 Q2 - 5.3 million shares at $46.37

2012 Q3 - 3.9 million shares at $46.37

Based on continued purchasing by institutions looking for value investments and the ability to lower their cost basis in the holding, a short squeeze is imminent on every move higher. Daily squeezes are consistently being seen day after day. The stock has seen many days over the month. The stock has had days in which HLF was down 10+%. After the stock begins to rebound slightly new and existing shorts become squeezed and the stock finishes well off lows and sometimes higher on the day. This continued price action, risk for an upside swing, and institutional buying are reasons to stay away from shorting HLF. Bill Ackman is a brilliant hedge fund manager and can help investors make money in other positions, but based on the reasons listed above, investors and traders should watch this dogfight from the sideline.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Blackrock Nearly Doubles Stake In Herbalife Ltd. Can 362 Institutional Holders Be Wrong?