Insiders PLUS Sample

Dear Reader,

Below is an actual recommendation from November 23, 2001. The stock recommended, Winn-Dixie, is up 30% in the five months since I recommended it. (This update is from May 2002.)

I give these samples free, once a year -- usually in November. The recommendation is not back-dated; it is a current recommendation from the portfolio. By posting a current recommendation, I allow you to follow the recommendation for better, or for worse, in real time -- knowing that I didn't just pick a past winner to put here.

I suggest you read the recommendation, digest it and compare it to the kind of analysis you get from other sources. Then, decide if it's the kind of guidance you're looking for. If it is, please consider subscribing to my weekly newsletter.

By the way, my first free sample recommendation was JC Penney. I recommended it in late November 2000. We sold it 9 months later for a 174% profit.


November 23, 2001


In my premier issue of Insiders PLUS, I recommended JCPenney as a strong turnaround candidate. All the bad news on the company was out and factored into the stock, but few people were giving credit to the potential that its new CEO, Allan Questrom, had set out to unlock. Such is the case with this week's recommendation, Winn-Dixie Stores (NYSE: WIN). Can we make 174% in 8 months like we did with JCP? I don't think we'll do quite that well, but a 55% to 75% return in the next 18 months seems very doable.

WIN, like JCP is a retailer, but WIN sells primarily groceries. At one time it was the 3rd largest supermarket chain in America, but slow-thinking, entrenched, family-owned management let the company slip all the way back to the number 10 slot. The company was in trouble and had to call in a specialist.

WIN's new CEO, Allen R. Rowland, has a reputation in the grocery business every bit as illustrious as Questrom's is in department store retailing. His most recent stint before coming to Winn in late 1999 was a quick turnaround at Smith's Food & Drug Centers, a stodgy family-owned chain in a similar predicament to Winn's. In less than two years, Rowland turned the company around and found a buyer at a price that satisfied the family and public shareholders alike. Before his quick fix at Smith's, Rowland spent 25 years at the extremely well-run Albertson's. (I'm continually tempted to recommend Albertson's, I just keep waiting for the right opportunity.) Over there he was senior VP and had responsibility for all retail operations in various portions of the United States.

Quick Kudos

It didn't take long for Rowland to start earning accolades at Winn. Burt Flickinger, a consultant and food retailing professor at Cornell University called Rowland's early turnaround plans " a brilliant master stroke.'' And Jim Donald, chief executive officer of Pathmark Stores, said of Rowland, ''He's probably the best candidate for the job.''

The problems at Winn, like those that plagued JCP, were daunting. The chain suffered from de-centralized supply chain management, but stratified ivory-tower executive decisions. Rowland is changing all that. He's restructured the company so that information and ideas flow freely up and down the management chain, but ordering is centralized to increase purchasing power.

Unprofitable departments have been closed, as have a number of underperforming stores. Major renovations have taken place at many stores, and highly-qualified new management has been brought in to take on everything from managing the company's real estate to training its employees. The list of new managers reads like a who's who in retail achievement. It was accompanied by a long list of old managers (some there for 35 to 40 years) taking much-needed retirement.

Money Talks

In the last few months, Winn-Dixie Insiders have showed their faith in the company's progress by buying more than 37,000 shares of stock. The bulk of it, 20,000 shares, was bought by Rowland himself. The rest was bought by 5 others, including the CFO, the Chairman of the Board and a VP. While these buys are not huge amounts of stock, they are certainly healthy amounts. They are also probably honest amounts. Many of the tremendous buys we saw a couple of years ago, turned out to be public-relations buying -- much of it mandated by the boards of directors. I've found no sign of that here.

By the way, Winn-Dixie is one of only two companies in the S&P 500 last year that reports the cost of options compensation in their earnings statement. So, the earnings it reports will be honest.

Not There Yet

While its debt is a bit high, Winn's interest coverage is comfortably adequate. Moreover, after the huge investment in renovations in the last few years, capital spending plans have been greatly reduced for the coming year to about $166 million. In recent years, that figure has generally been in the $330 million range. That extra free cash flow should allow the company to pay down debt relatively quickly, while still leaving enough left over for growth.

Winn-Dixie still has a lot to do to rebuild its image, improve its service, and re-shape its marketing, but the company is well on its way. It has cut the dividend to pay down the debt it incurred to restructure, and it has made all the other tough decisions it needed to make to get its act in order. Now all it needs is more time. But if you wait for all the bricks to be in place, you'll miss the best move in the stock.

WIN shares currently trade at $14. The company is expected to earn between $1.05 and $1.20 in the coming year. By 2003 I think it can return to its former $1.40 range. With most of its peers trading at a P/E of 18, Winn would probably fit right in there, bringing its price to the $22 to $25 range.

There's one last interesting tidbit about WIN. A few years ago, when it was in trouble, it was repeatedly mentioned by analysts as a potential takeover candidate. Its 1,100 stores in 14 states would make a nice addition to a chain trying to expand in the southeast where Winn is strongest. There was a big obstacle in the way of a takeover, however, that is, that the company is 40% family owned. But the new talk is that with the old generation retiring, the new generation is much less adamant about keeping independent. So, even if the stock doesn't perform well enough to reach its 1997 high of $50, you also have the possibility at any time that a suitor could bump the stock up 15% to 20% to close a deal. That wild card makes an investment in Winn-Dixie extra enticing. Buy Winn-Dixie Stores up to $15.

Reasons to Buy Winn-Dixie Stores:

  • New management team is accomplished in all phases of supermarket operations.
  • Stock sells at more than a 50% discount to its peer group -- a discrepancy which should disappear in a year or two.
  • Removal of old management paves way for needed reforms -- and possible buyout.

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Copyright 2008 by Jack Adamo. All rights reserved.