The Motley Fool

This FTSE 100 share has fallen 30% this week. Here’s what I’d do now

Image source: Getty Images.

Shares in FTSE 100 company NMC Health (LSE: NMC) fell 20% yesterday to close at £10.36, with heavy volume starting the slide in the early afternoon.

NMC Health is a private healthcare company in the United Arab Emirates that owns and operates hospitals.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

A few months ago, NMC Health dove on the back of a short report from Muddy Waters Research (of Netflix’s The China Hustle fame). Nobody knows why the stock fell this time, which fuelled speculation that the fall was due to a major shareholder liquidating their position in the company – and fast. 

Muddy Waters’ allegations

Muddy Waters Research is an investment research firm that focuses on uncovering business and accounting fraud. It investigates businesses and then takes positions based on their findings (both long and short). The firm came to prominence in the UK with their high-profile attack on Burford Capital in the summer of 2019. Burford is in the business of buying lawsuits to then attempt to win the case. Given that its assets are intangible, this makes the business fairly difficult to understand or even value. 

Muddy Waters suggested something similar with NMC Health, writing in its report that the business had inflated its asset purchase prices and also its cash balances. The firm also alleged that NMC Health had understated its debt. 

Short selling

Many investors believe that short selling should be illegal. I don’t agree, because without people and companies looking out for fraud and deception, the stock market would be a much worse off place. That’s not to say that I agree with the modus operandi of Muddy Waters – I do not agree with all of it. 

Their way of initiating the short attack on Burford Capital was highly dramatic. They announced one day that they would be revealing a large short position on a UK-listed stock at 8 the next morning. Burford took a huge hammering when it was revealed as the stock Muddy Waters were shorting. 

There have been many frauds on the London listed market, and while I do not think Burford Capital is one, short sellers are a necessary part of the stock market.

What I’d do with NMC Health

Many investors know one of Warren Buffett’s most famous phrases: “Be greedy when others are fearful“.

But Warren Buffett buys companies that he absolutely believes in. He also learned very early on his career that it’s “far better to buy a wonderful company at a fair price, than a fair company at a wonderful price“. 

Is NMC Health a wonderful company at a fair price? I would suggest not. It doesn’t make any sense for short sellers to go after wonderful companies. It’s far easier, and far more profitable, to target a company that isn’t of the highest quality or a company that is genuinely conducting fraudulent activities. 

Therefore, it’s unlikely that Warren Buffett would be taking advantage in the drop of NMC Health’s share price. 

I would also avoid this company. It could be that the short seller’s claims were legitimate, or it could be that they are vastly far-fetched – either way, I intend to watch this game from the sidelines.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Michael Taylor holds no position in any of the stocks mentioned. The Motley Fool UK owns shares of and has recommended NMC Health. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.