One key part of our three-pronged investing program is to spread your money out across the five main sectors of the economy: Manufacturing & Industry; Resources; Consumer; Finance; and Utilities.

In general, stocks in the Resources and Manufacturing & Industry sectors expose you to above-average volatility, and stocks in the Utilities and Finance sectors entail below-average volatility. Consumer stocks usually fall in the middle.

That’s because consumer firms benefit from continuous and often habitual use of their products and services, so they have much more stability in their sales and earnings, no matter what the economy is doing.

That’s especially true of large cap stocks that produce food, like Saputo Inc. (symbol SAP on Toronto). (The definition of a large cap stock can vary between stock market indexes. The name refers to the size of a company’s market capitalization. Saputo has a market cap of $6.0 billion.)

The company reported sharply higher earnings in its latest quarter, and has been cutting costs and consolidating facilities. In light of these changes, we’ve updated our buy/sell/hold advice on the stock in a just-published issue of The Successful Investor.

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Saputo: A food producer with strong brands and rising earnings

Saputo is Canada’s largest producer of dairy products, including milk, butter and cheese. It also makes snack cakes and tarts. Aside from Saputo, the company’s main brands are Neilson, Stella and Dairyland. The company also has operations in the U.S., Argentina and Europe.

In the three months ended December 31, 2009, the large cap stock’s earnings shot up by 80.4%, to $0.50 a share from $0.28 a share a year earlier. That’s mainly because of contributions from its Neilson Dairy subsidiary, which Saputo bought from George Weston Ltd. (Toronto symbol WN) in December 2008.

The higher earnings came despite a 20% increase in milk prices over the past year. (Saputo gets 98% of its earnings from its dairy businesses, and milk is their main raw material.) The company has been able to offset most of these extra costs by raising its selling prices for cheese in Canada.

Although earnings rose, the company’s revenue fell slightly in the latest quarter. That’s because, unlike in Canada, cheese prices in the U.S. have declined. As well, the higher Canadian dollar hurt the contribution of Saputo’s U.S. dairy operations, which supply a third of its revenue.

This large cap stock’s improved efficiency should help it deal with rising costs

The company is improving its efficiency in response to rising food ingredient costs. As part of this plan, it will consolidate several warehouses into one new facility in Toronto. It will also close its dairy plant in Brampton, Ontario, and merge this plant’s operations with its other plants in the province.

In The Successful Investor, we look to see if these moves are enough to help Saputo continue to increase its earnings with the economic recovery.

You can get our full analysis, including clear buy/sell/hold advice, on Saputo and 17 other Canadian stocks in the latest issue of The Successful Investor. Click here to learn how you can get one month free when you subscribe today.