Whitney Tilson Praises Obama for Stock Market, Discusses Herbalife, Walmart, Wells Fargo

Whitney Tilson is a famous value investing fund manager and is the founder of Kase Capital Management. Tilson has been in the investing business for 18 years and is also a famous writer, editing the Value Investor Insight newsletter. He has recently underperformed the index though he remains optimistic of turning around the performance. Tilson takes a long term horizon while investing in stocks, though he recently modified his style by saying that investors need to sell stock during the cyclical peak. Tilson is not a pure-play long investor but also shorts stocks though he thinks shorting is a very difficult art to master.

According to Tilson’s recent e-mail to investors, his short positions have not been doing too well with Herbalife Ltd. (NYSE:HLF) continuing to perform decently, despite the well-known problems that have been publicized by various hedge fund managers. Tilson thinks that President Obama has been very good for the stock market and has also been terrific at calling the stock market bottom during March 2009, when the S&P 500 fell below the 700 level.  At that point of time the media had been criticizing Obama as the market had fallen by 30% since Obama had taken the Presidency. The President’s buy call proved to be prescient as the stock market has almost tripled in value over the last seven years. Here is a list of Tilson’s positions in some well-known stocks.

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Herbalife Ltd. (NYSE:HLF) has been one of the most talked about stocks in recent times as some most prominent hedge fund managers have taken opposing positions in this stock, leading to a lot of coverage about the company’s operations. Herbalife Ltd. is a direct selling business which uses distributors to sell weight management products. This is similar model followed by Amway and this business model is considered controversial. The direct selling scheme is a pyramid scheme and many fly by night operators around the world have used this scheme to defraud customers. However, there are a number of legitimate companies which use this model to sell products and services.

Bill Ackman the founder of Pershing Square Capital has been the most vocal opponent of Herbalife Ltd. and continues to hold a short position on this stock, despite a $200 million FTC settlement that the company announced in July 2016. Tilson thinks that Herbalife Ltd. is a pyramid scheme similar to frauds like Vemma and Burnlounger. The company has a small, legitimate business within the pyramid which has allowed it to become such a huge organization. Tilson has been criticizing the company based on the fact that actual buyers and users of the company’s products consume a very small percentage of the overall company sales.  Despite the FTC settlement and the lingering questions around the company, Herbalife Ltd. continues to trade just around 15% shy of its 52-week high with a market value of more than $5.8 billion. The number of funds from our database having a position in this stock declined to 35 from 37 during the second quarter. They held shares worth $2.62 billion, accounting for 48% of the total outstanding stock at the end of June.

Tilson has not been positive about Walmart Stores Inc. (NYSE:WMT) as it is losing marketshare to online rivals such as Amazon.com Inc (NASDAQ:AMZN) at a rapid pace. He does not think that Walmart Stores Inc. will be able to successfully transform itself into a major online retail player to stop the marketshare losses. Though he thinks that Walmart Stores Inc. may look cheap from the P/E perspective, it could be a value trap due to low growth. Tilson thinks that Walmart’s move to increase employee wages is a positive not only for the company itself, but for the country as a whole. This move by the company came after low employee morale led to poor customer services and also may have been a factor in the company reporting a first decline in revenues during 2015. Tilson is not sure whether the company will continue to follow this strategy going forward if the economic situation or the top management changes. The value of positions held by the investors we track appreciated slightly to $6.86 billion from $6.83 billion, while the number of investors increased to 58 from 54 during the second quarter.

Wells Fargo & Co. (NYSE:WFC) is among the largest financial institutions in the USA with a market capitalization of more than $200 billion. Wells Fargo has been a favorite holding of Warren Buffett and has come out relatively unscathed from the 2008 crisis which saw the bankruptcies of major banks such as Lehman and Bear Stearns. However, Wells Fargo & Co. has been in the news for all the wrong reasons over the last one month as many of its employees defrauded thousands of the bank’s customers by charging them for services which they did not need or did not know about. This was a systematic issue at the bank and was driven by the company’s management pushing its employees to get customers to sign up for the overdraft service, even though it was against the interests of its customers. Tilson praises the Consumer Financial Protection Bureau (CFPB) for bringing this issue to light. He thinks that CFPB has played an important role in protecting customers from the illegal practices of the powerful financial industry which has paid out billions of dollars in fines in recent times. The number of investors that we track having a position in this stock declined by two to 88 between April and June, while the value of their holdings declined by 4.4% to $ 28.44 billion.

We also suggest to take a look at our compilation of the planet’s 10 most profitable companies.

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