Your TFSA (Tax-Free Savings Account) is for growing your wealth over the long term. If you’re a young Foolish investor, like a millennial, it can pay to take some chances. Just make sure you’re not passing the line between investment and speculation. In this piece, we’ll have a look at three undervalued top picks for April 2021 that I think are well positioned to outperform the TSX over the next five years.
So, if you’re ready to unlock the full power of tax-free compounding over the long term, consider the following:
Alimentation Couche-Tard: A c-store king worth of your TFSA
Alimentation Couche-Tard (TSX:ATD.B) is a convenience store roll-up play that could be ready to break out to new highs amid the latest rotation back into value. Following the stock’s failed Carrefour pursuit, the stock nosedived, bringing the valuation close to the lowest it’s been since the depths of the 2020 coronavirus crash.
COVID-19 headwinds are slated to fade, the firm’s investment in cannabis retailer Fire & Flower could pay off, and the company could announce a blockbuster deal, possibly in the grocery realm, as it looks to make something of its cash and credit. The stock trades at 13.4 times trailing earnings, 0.8 times sales, and 8.8 times cash flow — a low price to pay for a firm that could double its net income in five years.
Fundamentally and technically sound, Couche-Tard is growth, value, and defensiveness rolled into one, and TFSA investors would be wise to back up the truck before any big deal announcements send shares soaring.
Northland Power: A green powerplay for any TFSA
Northland Power (TSX:NPI) is a cheap way to play the renewable energy space. The stock trades at a mere 25.6 times trailing earnings, 4.4 times sales, and 8.7 times cash flow — considerably lower than some of its sexier peers in the green energy space. It’s also trading at a 15% discount to the average analyst’s consensus price target.
Fellow Fool contributor Chris Liew thinks that Northland Power is a screaming buy, praising the firm for its lengthy 30-year track record in power production and its incredible 24% CAGR over the past 10 years.
I think Liew is right on the money with this one and would encourage investors to let the underrated independent power producer power your TFSA’s growth and income. The 2.63% dividend yield leaves a lot to be desired, but it’s worth noting that the payout is slated to grow at an above-average rate moving forward.
Aphria: A pot stock that’s surging into April 2021
Aphria (TSX:APHA)(NASDAQ:APHA) is a speculative play that may be worth the risk if you’re a younger TFSA investor. The cannabis producer has been viciously volatile over the years, but it has risen to be the top performer of the first quarter of 2021. Those who had patience were profoundly rewarded with multi-bagger gains. Although the stock could fall back down to Earth without a moment’s notice, I’d argue that the fundamentals have improved significantly since the last time the cannabis trade heated up.
Despite the recent pop, Aphria stock still seems cheap relative to its growth potential. At just 3.6 times book value and 11.2 times sales, Aphria is my top pick in the cannabis space. As more U.S. states embrace the legalization of cannabis, Aphria could have ample rally fuel over the coming years. With earnings on tap for April 12, I’d look to nibble after a potential pullback, which could have the potential to be vicious.
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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 Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.