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Lululemon escapes Einhorn’s scorn Add to ...

When is no news good news for a stock? When the rumours suggest it’s about to be blasted by a prominent short-seller, who instead offers up new, unexpected targets.

The short-seller is David Einhorn of Greenlight Capital, who spoke today at the Value Investing Congress. Among the lucky companies thought in the crosshairs, yet escaping his scorn, are Lululemon Athletica Inc., Herbalife Ltd. and Nu Skin Enterprises Inc., according to Tweets from Wall Street journalists.

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All three were up 2 per cent to 3 per cent in midday trading. “Proof that this market is nuts will be if ... stocks Einhorn is expected to mention aren’t mentioned ... and RISE,” tweeted CNBC stock commentator Herb Greenberg.

Lululemon has long been a target of skeptics (including me) and short-sellers (not me) who felt the company’s wares faddish are unlikely to provide the prolonged mega-growth the stock’s valuation required. We have been wrong.

CNBC Becky Quick reported the rumour that Lululemon would be Mr. Einhorn’s featured short. Instead, Mr. Einhorn picked on another growth star that’s had a hiccup: Chipotle Mexican Grill Inc.

Chipotle shares hit an all-time high above $440 (U.S.) per share in April, which represented a ten-fold return since its November, 2008, low. It retreated to $277.26 in early August after a sales disappointment. It closed at $316.13 Monday, but fell to $290 in early trading after Mr. Einhorn’s comments were publicized. It partially recovered by midday.

Chipotle, which emphasizes its use of natural (and more costly) ingredients, is seeing moderating customer traffic after a 2011 price increase. The combination of these factors, plus additional worker health-care expenses under the new U.S. health-care laws, Mr. Einhorn says, presents problems.

However, the biggest problem, he argues, is Taco Bell and its new, higher-priced “Cantina Bell” menu. Per a live blog on the Business Insider web site, Mr. Einhorn said he has done a survey that suggests 27 per cent of Chipotle customers prefer the Cantina Bell menu, which remains priced below Chipotle’s offerings. Just 38 per cent of customers prefer the Chipotle menu to Cantina Bell, he claims.

(In a statement to Bloomberg News, a Chipotle spokesman said, “We have a different customer base and very loyal customers. What’s more, the food we serve is very different than Taco Bell.”)

Mr. Einhorn says Taco Bell’s potential rebound makes Yum! Brands Inc., its parent, an interesting investment idea, but he stopped short of recommending it.

Instead, he recommended General Motors Corp. and health insurer Cigna Corp., each of which saw small gains in midday trading.

He reiterated his 2011 short recommendation on Green Mountain Coffee Roasters, which fell in early trading, but rebounded so strongly it was actually up on the day by early afternoon.

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