Dear Mr. Berko:

I bought Winn-Dixie at $29 in 2001 and it’s now $7.26. What’s wrong with this company? Why is the stock sinking? What should I do with my 75 shares?  I also bought 50 shares of Newell Rubbermaid in 1998 at $49 and the stock has also gone down the tubes since I invested. Should I sell it or is there some recovery potential?

H.W. Durham, N.C.

Dear H.W.:

Winn-Dixie Stores Inc. (WIN-$7.26) was founded by brothers Carl and William Davis more than 90 years ago in Burley, Idaho. In 1925, William moved to booming Florida and opened the first Florida store with his four sons, A.E., J.E., Austin and Tine.  After William Davis’ death in 1934, the four brothers continued to run this burgeoning food chain and expand its locations via well-executed and complementary acquisitions. By 1969, WIN owned more than 700 stores throughout the South. In 1982, A. Dano Davis, J.E.’s son, became president and principal executive officer after an acrimonious battle with other cousins. One cousin, R.D. Davis, became an ineffective chairman of the board.

A. Dano lacked the charisma, energy and business acumen of his father. And in 1996, Wal-Mart began to invade WIN’s territories. So after 17 years, A. Dano stepped down in 1999 and an outsider, Al Rowland, took over. Rowland lasted only about four years because A. Dano didn’t give him much to work with. In 2003, repair strategist Frank Lazaran took over the remains on a wing and a prayer.  Revenues reached $14 billion in 1998 but they’ve declined at an average annual rate of 2.2 percent during the past six years to an expected $12 billion in 2004.  Some suits on Wall Street believe that WIN may be headed toward a minidisaster. Competitors Albertson’s, Kroger, Safeway and Publix have management teams that can jitterbug circles around the folks who run WIN.

WIN’s bleak stores are starving for capital, the company is still making $190 million in annual lease payments on closed stores and almost 70 percent of its current stores need a serious face lift. Add shelves of cheap and tasteless private-label goods — products that replace well-known brands — include inadequate inventory selections and a delicatessen section where you almost want to slice your own cheeses and meats, then mix in unfriendly, mean-looking cashiers, and you have what seems to be a perfectly planned strategy for failure.

WIN still has a solid basic foundation and good locations, but it’s beginning to lose the great respect it once enjoyed. If changes are not made very soon, Winn-Dixie may have to change its name to Lost-Dixie.  Newell Rubbermaid Inc. (NWL-$23.51) makes and markets Rubbermaid products and other name-brand consumer items, such as Levolor blinds; Sanford markers; Graco infant products; Mirro and Calphalon cookware; Sharpie, Parker, Waterman, Colorific and Paper Mate pens; Goody; Blue Ice; Little Tikes and other well-known popular products. I, too, “fell in like” with NWL in 1998 when it was trading at $48 a share and 24 times earnings. To my chagrin, NWL’s earnings and share price have traipsed downhill each year since.

Back in 1999, NWL got a “holier-than-thou” attitude toward retailers. As a result, many stores, including the big boys like Wal-Mart and Home Depot, began pulling NWL products from their shelves because NWL management haughtily refused to assist in selling promotions or provide other forms of retail cooperation. As a result, revenue growth was as flat as stale beer.

In the past 18 months, NWL management has tried to reinvent its success of the past several decades and I suspect its restructuring program will be well-received. Recent earnings handily beat Wall Street’s estimates, and its huge powerhouse portfolio of multiple brand names is very hard to beat.

Cash flow is muscular, the very appealing dividend yields 3.6 percent and earnings appear to be on the mend with positive momentum. Revenue growth won’t go volcanic, but new product development is emerging and complimentary acquisitions — such as its recent purchase of the Lenox brand of power tools, accessories and hand tools — will give NWL a sharper edge and a bolder presence.

Be patient with NWL. I don’t foresee a near-term increase in the dividend, but I believe cash flow will remain exceptionally strong, that net profit margins could improve by 50 percent in the next few years and good revenue growth could resume. My best guess is that NWL might be trading back in the high $40s or low $50s within the next three to four years.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.