The Top 3 TFSA Stocks for May 2021

TFSA stocks like Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B) should be on your watch list for 2021.

| More on:

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The stock market hit an all-time high earlier this year. Since then, the excitement has waned, and several growth stocks have declined precipitously. Meanwhile, the economy is reopening, and certain sectors of the economy are expecting an explosion of pent-up demand. 

With that in mind, your Tax-Free Savings Account (TFSA) should probably be diverted to stocks that are likely to rebound strongly or be overlooked by other investors. Here are my top three picks for May 2021. 

TFSA stock #1

Topicus (TSX:TOI) has already received some coverage from my Fool colleagues. Unsurprisingly, the stock surged higher along with the rest of the tech market. From February to April, the stock gained 40% in value. 

Since then, the tech market has tumbled, but Topicus has retained its gain. It’s currently trading at $88 — just 6.4% off its all-time high. That’s because investors recognize the company’s intrinsic value. 

Topicus delivered €494.0 million (CA$727 million) in revenue over the course of 2020. Net income was reported at €63.7 million (CA$94 million) over the same period. Net income grew by 37% last year, so you can assume it may grow by roughly 30% this year. That means the current stock price is trading at a forward price-to-earnings ratio of 28.4. 

In short, Topicus is undervalued and is probably one of the best TFSA stocks you can buy right now. 

TFSA stock #2

Leon’s Furniture (TSX:LNF) is yet another overlooked TFSA stock. While growth investors were focused on tech stocks and value investors were focused on energy stocks, traditional retailers like Leon’s have fallen under the radar. 

Nevertheless, the stock is up 67% over the past year and is still trading at a price-to-earnings ratio of just 9.4. The stock also offers a lucrative 2.9% dividend yield. 

The pandemic has convinced families and homebuyers to seek out more space. Larger homes and a record-high household savings rate could act as a tailwind for furniture retailers like Leon’s. That makes it an undervalued economic rebound play and the perfect TFSA stock for 2021. 

TFSA stock #3

Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B) is yet another rebound play. Couche-Tard’s convenience stores across North America may have already seen a surge in foot traffic. Domestic travel in the U.S. has quickly rebounded to pre-pandemic levels. Meanwhile, parts of Europe and Asia are opening up, too. 

More travel means more fuel consumption, which should trickle down to Couche-Tard’s bottom line. Meanwhile, the company has managed to sustain sales and gross margins on its convenience store items. 

However, none of that has been priced into the stock yet. In fact, the stock is trading at the same level it was before the pandemic erupted. It trades at just 15 times earnings, and the dividend-payout ratio is under 10%, which makes it an attractively undervalued TFSA stock for 2021.

Bottom line

If you expect an economic rebound in 2021, some of the undervalued TFSA stocks on this list should be on your watchlist.

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 Vishesh Raisinghani owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC and Topicus.Com Inc. The Motley Fool recommends LEONS FURNITURE.

More on Dividend Stocks

Canadian stocks are rising
Dividend Stocks

3 Ways to Invest in Canadian Real Estate Under $20

Real estate can be a great way to make passive income, but you certainly don't have to invest a lot…

Read more »

grow dividends
Dividend Stocks

TFSA Wealth: 2 Oversold Canadian Stocks for a Retirement Fund

These top TSX divided stocks look attractive today for TFSA investors.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Create $1,487 in Passive Income From a Top TSX Dividend and Growth Stock

This top growth stock on the TSX today could bring in almost $1,500 in passive income and triple your investment…

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Renters Will Rise in Number vs. Homebuyers in 2022

The greater majority of Canadian renters doubts their ability to purchase a home in 2022 due to surging inflation and…

Read more »

Man holding magnifying glass over a document
Dividend Stocks

West Fraser Stock: A Sneaky Growth Stock No One Talks About

West Fraser (TSX:WFG)(NYSE:WFG) stock has been a sneaky growth stock when it comes to its dividend.

Read more »

Dividend Stocks

Inflation Investing: 2 Top TSX Dividend Stocks to Buy Now

TFSA income investors can get dividend yields of better than 6% to help offset the impacts of high inflation.

Read more »

Canadian Dollars
Dividend Stocks

Got $1,000? Invest it in Real Estate

If you've got an extra $1,000, you should check out cheap REITs like Allied Properties (TSX:AP.UN) for juicy income.

Read more »

Community homes
Dividend Stocks

Real Estate: 2 Top Dividend Aristocrats to Own Today

The recent correction in the real estate sector has made several real estate stocks like these two attractive to income-seeking…

Read more »