In the winter and spring of 2020, Canadian and global stocks were pummeled due to turbulence caused by the COVID-19 pandemic. The global economy is still putting together the pieces, and there is no telling if or when a second wave could deal even more damage. However, this environment has also presented historic opportunities for investors. In this climate, the Tax-Free Savings Account (TFSA) can be huge for the savvy and patient buyer. Today, I want to look at three small-cap stocks that are perfect for a TFSA right now.
TFSA investors: This small-cap stock is still undervalued
Back in early March, investors were just beginning to digest the beginnings of a sharp market correction. At the time, I’d suggested that it was a fantastic time to jump on high-quality stocks that were falling into discount territory. goeasy (TSX:GSY), a Mississauga-based financial services company, was one of the stocks I’d targeted. This is a stock I love for TFSA investors.
Shares of goeasy have dropped 17% in 2020 as of close on July 31. However, the stock is up 27% over the past three months. In Q1 2020, the company saw its loan portfolio increase 33% to $1.17 billion. Meanwhile, revenue climbed 20% to $167 million and diluted earnings per share grew 20% to $1.41. goeasy achieved total same-store revenue growth of 19.6%, and it suffered no reduction to its personnel due to the pandemic.
The stock last had a favourable price-to-earnings ratio of 12. goeasy is a financial services company with huge growth potential in the years ahead. Moreover, it also offers a quarterly dividend of $0.45 per share. This represents a 3.2% yield.
One stock to hold for the future
In early April, I’d discussed why Park Lawn (TSX:PLC) was my favourite stock to scoop up after the market correction. This was is also very attractive for TFSA investors. Shares of Park Lawn have dropped 13% in 2020, but the stock is up 15% in a three-month span.
Park Lawn put together a strong first quarter in the face of the pandemic. Revenue increased to $73 million compared to $50 million in Q1 2019. Meanwhile, adjusted EBITDA climbed to $17 million over $11 million in the prior year. Investors can expect to see the company’s second-quarter 2020 results as markets open on August 14.
Shares of Park Lawn last possessed a solid price-to-book value of 1.3. The company boasts a fantastic balance sheet, and it is one of the strongest players in a fast-growing industry. This is one to stash in your TFSA for years to come.
This small-cap stock is perfect for a growth-oriented TFSA
The final small-cap stock that I want to look at for TFSA investors is Cargojet. This company provides time-sensitive overnight air cargo services in Canada. Its stock has surged 61% in 2020 so far, and its shares are up 83% year over year. Cargojet released its first-quarter 2020 results on May 7.
Total revenues increased 11.4% year over year to $123 million. Moreover, adjusted EBITDA grew 24.5% to $40.2 million. Its domestic overnight business and e-commerce maintained robust growth in the face of the pandemic. Management expects earnings growth to continue at a strong pace as it comes out of this crisis. That puts it ahead of many other companies in this difficult climate.
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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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC.