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NXP Semiconductors is focused on making chips for the auto sector as well as factory automation – two huge growth areas.Steve Marcus/Reuters

Portfolio manager Anish Chopra urges investors to do a gut check when deciding whether to buy into the markets right now, with many stocks trading near record highs and mounting worries a correction could be around the corner.

“Understand yourself,” says Mr. Chopra, managing director at Portfolio Management Corp. in Toronto. “Even though the market recovered quite quickly from the start of the pandemic, consider that a test period for the risks that you’re willing to take on.”

He says investors should know their risk tolerance and ensure they’re properly positioned for another potential market drop.

Mr. Chopra, who manages about $500-million in assets, has been going through this exercise with his clients, and choosing stocks he believes are good bets not just now, but over the longer term.

“There are pockets of opportunity, but they’re certainly harder to find today,” he says.

Mr. Chopra’s firm holds about 30 to 40 stocks at one time, including Canadian, U.S. and international names.

His growth portfolio, which on average included 86 per cent equities, 6 per cent fixed income and 8 per cent cash, gained 22.3 per cent on a total return basis for the year ended July 31. (Return figures provided are before fees, which can vary between 0.5 per cent to 1 per cent depending on the amounts under management.)

Here are three stocks he believes will perform well in the next few years:

Smith & Nephew PLC (SNN-N)

Smith & Nephew is a U.K.-based medical device company that focuses largely on hip and knee replacements, which Mr. Chopra notes is a growing market as baby boomers age and who, as a group, will be in greater need of those services. Smith & Nephew provides knee and hip implants as well as joint repair and wound care products.

“In addition to being a play on the aging population, it’s also a COVID recovery play,” he says. That’s because several elective surgeries have been put off during the pandemic to make way for COVID-19 patients.

“As those elective surgeries come back, we should start to see more activity in those areas,” he says.

His firm purchased the stock, which trades as an American depositary receipt on the New York Stock Exchange, about a year ago at about US$37.50. The stock is currently trading around US$38.30 and he expects it to provide strong returns over the long term.

The company also pays a modest dividend, yielding about 2 per cent. “So, you get paid to wait while the recovery takes hold.”

NXP Semiconductors NV (NXPI-Q)

Mr. Chopra’s firm purchased shares of this Netherlands-based semiconductor company at the end of 2018, after its proposed acquisition by Qualcomm Inc. fell through when the U.S. chip maker failed to get regulatory approvals in China.

NXP’s stock price fell, which he saw as a good time to scoop up some shares at around US$80. The stock is currently trading around US$213.

NXP is focused on making chips for the auto sector as well as factory automation – two huge growth areas.

“Our thesis then, and today, is that it’s in sectors that will continue to be in very high demand,” he says.

NXP, which yields 1.1 per cent, has been returning capital to shareholders through dividends and buybacks.

Enbridge Inc. (ENB-T)

This large energy infrastructure company is one of the top dividend payers in Canada, currently yielding about 6.8 per cent.

Like many investors, Mr. Chopra holds Enbridge for its high, predictable yield, but also based on the belief that, despite the global transition to a low-carbon economy, there will be a need for traditional energy infrastructure in the near term.

“It’s going to take some time to transition from oil, even natural gas, to other renewable sources,” he says. “We could be using less, but we’ll still need that traditional energy infrastructure … and we believe the stock compensates us for the time period that it will be used.”

Enbridge is also growing its renewables infrastructure base and, while that segment is small today, the company is expected to keep adding to those assets down the road.

Mr. Chopra’s firm has owned the stock for many years and increased its position when the stock price dipped below $40 in early 2018.

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