One part of our three-pronged investing program is to spread your money out across the five main stock sectors of the economy (Manufacturing & Industry; Resources; Consumer; Finance; Utilities). (The other two parts are to hold mostly high-quality, dividend paying stocks, and downplay stocks in the broker/public-relations limelight.)

How we place stocks in the appropriate stock sectors

Many stocks clearly fit in certain stock sectors. Royal Bank, for example, obviously goes in the Finance sector. But sometimes correctly categorizing a stock requires a judgment call. That’s the case with La-Z-Boy Inc. (symbol LZB on New York). We update our buy/sell/hold advice on La-Z-Boy in the current issue of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stocks. See below for further details on this rapidly changing company.

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La-Z-Boy sells its furniture through department stores. It also sells directly to consumers through its 311 La-Z-Boy Furniture Gallery stores. The company owns 68 of these outlets. Franchisees own the remaining 243.

Despite its retailing activity, we put La-Z-Boy in the Manufacturing & Industry sector. That’s because our main criteria for deciding whether a company falls into the Consumer or the Manufacturing & Industry sector is whether it behaves in a cyclical or non-cyclical manner. A company in the Manufacturing and Industry sector is subject to the ups and downs of the economic cycle. La-Z-Boy certainly fits this description, as the weak economy has hurt the company’s sales.

Consumer firms, in contrast, benefit from continuous and often habitual use of their products and services, so they have much more stability in their sales and earnings, regardless of the state of the economy.

It doesn’t matter who the company sells to. For instance, consumers buy both reclining chairs and soup. But furniture makers are subject to wide swings in demand, so they go in the Manufacturing & Industry sector. Soup demand is far more stable, so soup makers go in the Consumer sector. While the soup company “manufactures” its products, its customers buy them during good times or bad.

Aggressive cost cuts put La-Z-Boy ahead of many other manufacturing stocks

La-Z-Boy makes upholstered reclining chairs and sofas. It also imports wooden furniture, such as tables and entertainment centres. The company sells its products through both large department stores and its La-Z-Boy Furniture Gallery stores.

Weak U.S. housing markets have hurt new-furniture demand. La-Z-Boy responded with an aggressive cost-cutting plan that included cutting 25% of its workforce, shifting production to low-cost countries such as Mexico and closing unprofitable stores.

The company is now starting to see the benefits of this plan: even though its sales fell in its most-recent quarter, the company reported positive earnings of $0.12 a share, compared to a year-earlier loss of $0.27 a share. (These figures exclude costs related to the restructuring.) La-Z-Boy put some of the savings from its restructuring toward its long-term debt. These developments have already helped propel La-Z-Boy to a gain of 1,815.1% from the low it reached last March. Further gains may lie ahead.

For our latest buy/sell/hold advice on La-Z-Boy and dozens of other companies in the fast-changing U.S. market, you should subscribe to Wall Street Stock Forecaster. Click here to learn how you can get a one month free trial.