TFSA Investors: 1 Stock to Buy During the Next Market Crash

Looking for an investment for your TFSA account? Here’s a stock that has soared more than 3,000% over the past decade.

| More on:
Financial technology concept.

Image source: Getty Images

The Tax-Free Savings Account (TFSA) was introduced to Canadians just over a decade ago. The savings account was designed to provide Canadians with an option to save for short-term goals. The Registered Retirement Savings Plan (RRSP) has remained the primary option for retirement savings. 

Withdrawals are made completely tax-free, which is why the account can be used for short-term objectives. In addition to that, any gains made on the principal amount invested are not taxed. This means that if the contribution limit this year is $6,000, investors can end the year with far more than just that in their TFSA account due to investment gains, as long as they’re only contributing up to that $6,000 that limit. 

A major difference in comparison to the RRSP account is that you cannot use contributions as a tax break come tax season time. TFSA investors technically have already been taxed on their contributions, which explains why withdrawals are able to be made tax-free. 

Are we nearing a market crash?

With a second wave of the COVID-19 pandemic looming, are we headed for another steep market crash? Either way, it’s never a bad idea for TFSA investors to have an updated watch list for stocks they’re looking to add at a discount. 

When the COVID-19 pandemic first hit, economies across the globe took a massive hit. The S&P/TSX Composite Index dropped a staggering 37% in just over one month. While the market has since gone on an incredible run dating back to that March 23 low, it’s still down a couple of percentage points on the year. 

For TFSA investors with cash ready on the sideline, I’ve reviewed a top tech stock worth a look if we do get hit with another crash.

Constellation Software

The Canadian tech company, Constellation Software (TSX:CSU), has a very rich history of delivering market-beating returns to investors. Over the past 10 years, the stock has grown close to 3,500%. Not too bad considering the Canadian market has returned just under 50% during that same time frame.

Constellation Software is in the business of software development. The tech company designs software for vertical-specific industries, which includes both private- and public-sector companies. Private sector clients include a wide range of industries, while public sector customers consist mainly of government-related clients. 

The company has turned to acquisitions in the past to help accelerate revenue growth. Investors trying to find the full details on the company’s list of acquisitions may come up a bit empty-handed, though. Constellation Software believes that limiting the amount of information shared to the general public helps keep acquisition prices low. 

Don’t sweat the high valuation

The company is far from a cheap stock at today’s price, but the premium is definitely warranted. After driving more than a 3,000% growth over the past decade, TFSA investors will need to pay up to own shares of a company with that type of track record.

The company trades today at a forward price-to-earnings ratio of 37, and a price-to-sales of 9.

Foolish bottom line

Whether you’re investing in your RRSP or TFSA account, you can’t go wrong with picking up some shares of Constellation Software.

The tech company has an incredible history of significantly outperforming the Canadian market, and it doesn’t look like it has any plans of slowing down just yet.

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 Nicholas Dobroruka has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software.

More on Tech Stocks

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Will Transform Everything: Investors, Be Early Adopters and Buy These 3 Stocks

Investors looking to invest in companies doing big things in AI should consider these three stocks for their portfolios.

Read more »

stock research, analyze data
Tech Stocks

Forget Shopify: These Unstoppable Stocks Are Better Buys Today 

Should you consider buying Shopify stock while rivals consider a buyout or should you go for stocks with a stronger…

Read more »

A colourful firework display
Tech Stocks

2 Potentially Explosive Stocks to Buy in March

These two growth stocks are destined for many more years of market-crushing returns.

Read more »

edit CRA taxes
Tech Stocks

TFSA Millionaires Are Learning They Can Still Be Taxed

If you day trade stocks like Shopify (TSX:SHOP) in a TFSA, you may be taxed.

Read more »