UNDERSTANDING where a company falls within its industry’s life cycle is key to identifying a strong investment opportunity, according to Raju Gunnings, senior research analyst at NCB Capital Markets.

Speaking at NCB’s recent investor webinar titled ‘How to Spot Winning Stocks Using Fundamental Analysis’, Gunnings explained that, just like people, industries evolve through distinct phases — growth, maturity, and decline. Recognising a sector’s position in this cycle, he noted, can provide investors with valuable insight when constructing a portfolio. He explained the growth phase, describing it as similar to a baby growing into a young adult and gave examples of companies that could benefit from industry growth, such as those in the energy sector which still have untapped potential in Jamaica.

With the Government aiming to generate 50 per cent of energy from renewable sources by 2030, this signals expectations for accelerated demand, aligning with the global shift toward cleaner energy. Companies such as Tropical Battery and Wigton Windfarm, he noted, could benefit significantly from this transition if the targets are met.

“While growth-stage companies have big earnings potential, we have to be mindful that they also reinvest heavily, which means that cash flow can be tight and dividends may not be as frequent. Their priority is to expand and improve their ability to pay as many dividends as frequently as possible in the future,” Gunnings explained during the webinar.

However, he warned that with high potential comes high risk. Because the industry is still developing and execution risks are at their peak. If companies succeed, the rewards can be substantial, but if they struggle to gain traction, investors could see lower returns.

The second phase is maturity, where industries still grow but at a steadier and slower rate.

“Companies in mature industries tend to have stable earnings, strong market positions, and consistent demand. At this stage, clear market leaders often dominate while smaller players may struggle to compete,” he said.

At this stage, companies are less likely to focus on rapid expansion and more on efficiency, pricing power, and brand strength. Growth may come from innovation, mergers, or acquisitions aimed at strengthening their market position or entering new industries. These companies often generate solid cash flow and are more likely to offer steady, growing dividends.

“A great example is Carreras,” he pointed out. “While the tobacco industry is mature — and some might argue it’s starting to decline — Carreras is still driving growth through innovating, for example, expanding into the vape market to adapt to consumer market trends.”

Mature market industries tend to carry less risk than growth industries, making them attractive for retirees and conservative investors. While they may not offer explosive returns, their steady dividend payouts provide a reliable income stream and are appealing to a wide range of investors.

The final phase is decline, when companies start to lose momentum due to changing consumer habits, evolving technologies, or shifting economic conditions. This leads to falling demand, reduced profits and, in some cases, business closures. While some companies attempt to reinvent themselves, success is rare, and risk levels remain high.

“If a company in a shrinking industry isn’t innovating it might be a sign for investors to exit,” he shared.

Gunnings encouraged investors to use this knowledge strategically. When macro factors — such as rising interest rates or surging demand for renewable energy — affect a sector, stocks in that space often move in the same direction. This is known as high correlation, and smart investors use this dynamic to their advantage. Some investors opt for thematic investing, which focuses on specific sectors expected to benefit from broader trends. Others choose to diversify across multiple industries to manage risk.

For example, Jamaica’s ageing population is a growing theme. According to the Planning Institute of Jamaica (PIOJ), by 2050 approximately 20 per cent of the population will be over age 65, surpassing the percentage of children.

“This megatrend could boost industries in the health sector and companies like Indies Pharma, Fontana Pharmacy, or Image Plus Consultants,” he shared.

This type of knowledge can also reduce risk in an investment portfolio through diversification. As different sectors react differently to economic conditions, a well-diversified portfolio ensures that losses in one area may be offset by gains in another. He used as an example the COVID-19 pandemic which severely impacted tourism stocks while food manufacturing and distribution remained steady.

“It’s a strategy that ensures your portfolio can outperform — no matter what the market throws at us,” said Gunnings.

He recommended focusing on stocks in growth and mature phases, saying that by doing so, investors can align with Law Three of the Five Laws of Wealth Creation — investing in companies within strong, long-term growth industries. He added that focusing on best-in-class companies gives investors the confidence to hold those stocks over the long term, aligning with Law Five of the wealth creation framework.

The Five Laws of Wealth Creation are a set of principles often used in financial education and investing seminars to guide people toward building and preserving wealth over time. They are: spend less than you earn, save and invest consistently, invest in long-term growth industries, avoid investments you don’t understand, and buy quality stocks and hold for the long term.

GUNNINGS… if a company in a shrinking industry isn’t innovating it might be a sign for investors to exit