TFSA Investors: 2 Trashed Stocks for Tax-Free, 100% Returns

If you look at the American markets, it seems like you missed the boat on stocks. But here are two smelly stocks that might have a bright future.

| More on:
falling red arrow and lifting

Image source: Getty Images

There is a massive discrepancy in the stock market between the haves and the have nots. Value stocks, largely consisting of energy, financial, restaurants, and REITs, have been bashed hard since the end of February. Technology, consumer staples, and regulated utilities have done quite well. 

If you are a value investor, the grounds are rife with deals these days. You have to have a strong stomach to get into these companies, though, as their weaknesses look to persist for the foreseeable future. For those of you who like digging around in the trash, I will pull out two smelly stocks that might have a bright future. Buy these in your TFSA, and you could double your money tax-free.

The restaurant gem

After pushing aside some dirt, I managed to uncover a previous high flyer that fell hard and fast. MTY Food Group (TSX:MTY) was a rising star for years, trading at a high multiple and sporting a growing dividend. Well, the dividend fell to zero, and the stock is more than 50% below its highs.

Since its businesses are largely situated in the wastelands that were once shopping malls, MTY has been hit hard. Its restaurants covered a large territory across Canada and the United States, a level of diversification that should have mitigated any regional impacts to its earnings. Unfortunately, an epic pandemic hammered it all at once in a way no one could have foreseen.

There is a bright spot, though. All this stock needs is for the economy to open up. It is hard to believe that we will be living this way forever. Indeed, many countries, provinces, and states have already begun to gingerly open their doors. It wouldn’t take much for this stock to double.

Landlords in pain

The mall and office owners are feeling the pain of this crushing pandemic. Working from home is now the norm. Many are even wondering if this work-from-home style of operation will become more widespread, reducing demand for office spaces. Malls are abandoned, and the stores within are starting to go bust, increasing fears that brick-and-mortar’s demise has been hastened.

Along with other landowners, RioCan REIT (TSX:REI.UN) got whacked by the lockdown tsunami. Furthermore, its diversification was of little comfort when the entire country got shut down. It also faces another challenge. About 50% of its properties are located in Ontario. That province will be slower to open than other regions of Canada.

A couple of facts should comfort investors, though. Canada, even Ontario, is opening up. It is also comforting that the CEO has openly supported the 9% distribution. Even though the share price has come up a bit from its lows, it is likely that there is still another 50% or more to go in the stock once markets start to open up.

If RioCan gets close to its highs, you are looking at a potential capital gain of between 60% and 100% depending on your average cost. Adding in the distribution, which is tax-free in a TFSA, you have an extra 9% at today’s price that’s paid out monthly.

The bottom line

The pandemic hammered both of these stocks. They were thrown out because of the narrative that offices and malls are under threat of going out of business. There is risk in the narrative, which is why you can still pick up these stocks at reduced levels. In a TFSA, there is a very good chance you could double your money on a total-return basis should the economy open up and recover.

However, it is very likely that, when economies open up, these stocks will have excellent upside. This could happen within the next year, so it is not even that long a hold to potentially double your money. In the meantime, you can collect some distributions from RioCan and potentially from MTY if it starts to pay its dividend once again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kris Knutson owns shares of MTY Food Group and RIOCAN REAL EST UN. The Motley Fool owns shares of and recommends MTY Food Group.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

3 Top TSX Passive-Income Stocks That Pay Out Every Month

Here are some of the best TSX stocks for passive monthly income. Investors should explore to see if they're a…

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Remarkably Cheap TSX Stocks to Buy Right Now

These three cheap TSX stocks are some of the best buys on the TSX, and yet their share price is…

Read more »

think thought consider
Dividend Stocks

This Dividend Stock Could Create $1,353 in Passive Income in 2024

This dividend stock can create massive passive income from two sources, so don't miss out before a recovery in 2024!

Read more »

Increasing yield
Dividend Stocks

TFSA Investors: Buy This Top Bank Stock for High-Yielding Dividends

Generate a superior passive-income stream by investing in this high-yielding dividend stock from Canada’s Big Six banks.

Read more »

grow money, wealth build
Dividend Stocks

2 of the Best TSX Dividend Stocks I Plan on Holding Forever

High-yield TSX dividend stocks, such as Enbridge, offer you tasty yields and trade at significant discounts to consensus price targets.

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »