The Tax-Free Savings Account (TFSA) is a boon for Canadians, as it allows full compounding of your money. That means the total returns generated within your TFSA, be it a capital gain, interest, or dividends, will be tax free throughout the holding period and even at withdrawal. This year’s TFSA contribution limit is $6,500. Here are two TSX stocks you can consider for TFSA investment in 2023.
Canadian mid-cap energy stock Baytex Energy (TSX:BTE) is a growth-oriented name. Though it has lost 15% in the last 12 months, it has gained nearly 1,000% since the pandemic.
Baytex Energy has a diversified asset base, with almost 50% of the total production coming from the U.S. Eagle Ford shale basin. After its Ranger Oil acquisition announcement last month, Baytex now expects to produce nearly 160,000 barrels of oil equivalent per day.
While it seemed Baytex was focusing more in its more lucrative Clearwater play, this expansion in the Eagle Ford actually enhances its light oil production and is expected to improve the company’s breakeven price. Note that light oil obtains a much higher price than heavy oil and, thus, helps boost revenues.
Like its TSX energy peers, Baytex Energy saw stellar free cash flow growth and a remarkable debt reduction last year. Such fundamental improvements will likely create shareholder value in the long term.
Baytex Energy reported free cash flows of $649 million in 2022, representing a decent 63% year over year. It’s thanks to its higher production and relatively higher prices that drove such financial growth.
Debt reduction remains a main target for Baytex, as it intends to allocate 50% of free cash flow toward it when the deal with Ranger closes. So, given its improving balance sheet and handsome earnings growth prospects, Baytex Energy stock looks like an appealing bet for long-term investors.
Gold stocks have come down significantly this year on the expectations of a longer and higher interest rate-hike cycle. But some of the TSX gold miner stocks seem to have hit bottom and could have a limited downside. One of them is B2Gold (TSX:BTO). It has lost 15% so far this year.
Gold miner stocks rallied in the fourth quarter of 2022, following the yellow metal, on easing inflation and expected slowing pace of rate hikes. When benchmark interest rates rise, Treasury yields also gain in tandem, turning yellow metal relatively unattractive. As a result, we saw capital moving to Treasuries, as rates rose last year.
The bullion and TSX gold miner stocks might not please investors, at least for the next few months. However, they will likely turn higher later this year on easing macroeconomic challenges. BTO stock looks particularly attractive, given its discounted valuation, superior dividend yield, and stable earnings growth prospects. Its strong production profile and low-cost structure will likely boost its financials and create value in a high-price environment.