1 Huge TFSA Change in 2023 (and How to Benefit)

The TFSA contribution room is increasing, making it a great time to invest in high-quality growth stocks like Magnet Forensics.

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Editor’s note: This article has been updated to correct an erroneous mention of 2022.

It’s official! The Canada Revenue Agency (CRA) has announced that the contribution room for the Tax-Free Savings Account (TFSA) will be $6,500 for 2023. After several years of maintaining the TFSA contribution room at $6,000, the CRA has increased it to reflect the current environment, which is inflationary.

Now, the total contribution room available for Canadians in 2023 will be $87,500. It’s a sizeable amount, and the cumulative TFSA contribution room should surpass $100,000 by 2025.

Supercharge your TFSA by purchasing quality growth stocks

The Canada Revenue Agency emphasized that the annual dollar limit for the TFSA is indexed for inflation. So, the TFSA limit was bound to increase in 2023 as rising commodity prices, geopolitical tensions, red hot gas prices, and supply chain disruptions have all contributed to inflation.

The TFSA is an extremely flexible registered account, the benefits of which can be leveraged to create massive wealth over the long-term. Any withdrawals from the TFSA in the form of capital gains, interest, and even dividends are exempt from CRA taxes, making it ideal for holding a portfolio of growth stocks.

Typically, growth stocks have the potential to deliver outsized gains to investors in bull markets. Further, the sell-off in the stock market provides investors with the opportunity to purchase quality tech stocks such as Magnet Forensics (TSX:MAGT) at a discount in 2023.

Let’s see why Magnet Forensics should be part of your TFSA portfolio in 2023.

The bull case for investing in Magnet Forensics stock

Magnet Forensics provides enterprises with a suite of products and services to investigate cyberattacks and digital crimes. It develops investigation software for its blue-chip customer base, which includes governments, law enforcement agencies, and private organizations.

Valued at a market cap of $980 million, Magnet Forensics increased its sales from US$27 million in 2018 to US$70.28 million in 2021. The company expects its total addressable market to touch US$270 billion by 2026, up from US$170 billion in 2021, providing it with enough room to keep growing the top line.

Magnet has a client base of over 4,000, including 150 Fortune 1000 companies. In the June quarter, its widening customer base and strong retention rates allowed the company to increase sales by 41% year-over-year to US$23.1 million.

Adam Belsher, CEO of Magnet Forensics explained, “With continued strong demand in our end markets across both private enterprise and the public sector, we delivered 41% topline growth in the quarter. Cybercrime and crimes with digital evidence associated with them continue to grow globally. Our customers are investing in solutions that support their missions to solve crimes and protect corporate assets, despite the current macro-economic headwinds.”

The company’s annual recurring revenue surged 49% year-over-year to US$73.7 million in Q2 on the back of higher licensing fees and rising software maintenance and support sales.

Will MAGT stock turn $6,500 into $50,000?

Analysts expect sales to touch $163 million in 2023, while adjusted earnings are forecast at $0.32 per share. So, MAGT stock is valued at six times forward sales and 75 times forward earnings, which is still quite steep.

But analysts remain bullish and expect the TSX tech stock to gain over 50% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Magnet Forensics Inc. The Motley Fool has a disclosure policy.

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